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06 March 2024

Market Round-Up

Franziska Bossart, head of Amazon’s corporate venture capital arm, has announced plans to accelerate investments in start-ups specialising in Artificial Intelligence (AI) and robotics this year. The Amazon industrial innovation fund currently holds 12 investments in its portfolio, with US$110m spent as of June 2023. A figure far below the US$1bn set aside for the fund.

The objective of the fund is to finance start-ups that can utilise both robotics and AI to enable Amazon to become, in Ms. Bossart’s words, “more efficient, safer for our associates, and increase the speed of delivery to our customers”. The e-commerce giant is seeking to emulate the Big Tech companies, who have placed AI at the forefront of their development pipelines. Microsoft, for instance, has earmarked US$13bn to invest in OpenAI in order to infuse AI technology into its Office productivity apps and Bing search engine.

Similarly, Amazon has also committed itself to spending US$4bn on Anthropic, a generative AI start-up. The deal aims to integrate AI features across Amazon’s business to increase efficiency and enhance the customer experience. For example, by granting Amazon Bedrock customers, namely AI developers, access to new model customisation and fine-tuning options. 

Amazon’s appetite for automation and eagerness to embrace new technologies has alarmed some warehouse and delivery workers about their job security and future prospects. Yet, Franziska Bossart has stated that automation will mainly target roles with repetitive or dangerous tasks, and that “we’re also a long way off from replacing all humans”. 

Meanwhile, in the UK, landlords and property funds are planning to go bargain hunting as the real estate downturn and rising debt costs take a toll on smaller commercial property owners, further driving consolidation in this space.

Since 2021, the real estate sector has been hit hard by the spike in interest rates which have dampened valuations of property assets and the share price of real estate investment trusts (REITs). This is because the higher cost of finance has curtailed landlords’ ability to construct new properties or upgrade existing ones and has also encouraged an outflow of investor money into other assets such as bonds.

In such a harsh environment, many commercial landlords are confronted with higher debt servicing costs and the prospect of refinancing on less favourable terms, against lower property values, likely forcing some to consolidate or divest their holdings.

Segro, a large warehouse landlord, is seeking to capitalise on this, amassing £900m at the end of February, thanks to a share placement. The money is earmarked for acquisitions and further capital expenditure, mainly warehouse construction, to build out Segro’s £20.7bn portfolio. Likewise, Derwent London’s CEO Paul Williams thinks they’re “in a great place to acquire”, believing that office values are “now approaching this cycle’s lows”, creating an opportunity to purchase new assets before valuations start to rebound.

However, REITs and landlords will need to be selective with the properties that they acquire, as office vacancies in major cities have risen to a two-decade high and warehouse tenants seek to relocate to higher quality units. Therefore, an uptick in valuations will not be uniform across all assets within the property sector.
 
Please note that this communication is for information only and does not constitute a recommendation to buy or sell the investments mentioned. Investments and income arising from them can fall as well as rise in value. The information and views were correct at time of publication but may have changed at point of reading.
 
 
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