Industrial land values halve as borrowing costs bite

Industrial land values shrank by nearly 50% during the six months to December on the back of inflation and increased borrowing costs, according to data from Colliers. The average land value for the sector in the UK dropped by 47.4% to £1.5m per acre in December last year, from £2.86m in June 2022. Colliers said the increasing cost of debt has pushed down values. Yields moved out by more than 150bp as the Bank of England increased the base rate. Researchers said the move drove the cost of borrowing higher, while inflation continued to push up development and construction costs. Prime rents continued to grow, although at a slower pace than during 2021. Figures from Colliers’ latest UK Industrial Rents Map show that the average prime headline rent for large distribution warehouses (100,000 sq ft-plus) in the UK rose by 3.4% over the six-month period ending December 2022, and by 10.5% year-on-year to £10.20 per sq ft. For smaller and multi-let units across the UK, there was 5% growth to £13.70 per sq ft over the six-month period, and a 13.2% uplift year-on-year. Prime rents for multi-let and mid-box assets in London rose by 6.9% over the six months to an average of £25 per sq ft, and grew by 12.4% year-on-year. Andrea Ferranti, head of industrial and logistics research at Colliers, said: “We have seen a significant shift in land values over the past six months or so, caused by a cacophony of issues coming together at once: strong inflation, rising interest rates and the consequent slowing economic activity. “While it was generally accepted that the market was due a correction, the speed at which this occurred was widely unexpected. We suggest that values are about to bottom out and, providing we see strong signs of inflationary pressures abating this year, borrowing costs will ease.” Len Rosso, Colliers’ head of industrial and logistics, said: “There has been continued solid rental growth for the sector over the past six months, despite the disturbances to the country’s economy. Demand has continued for space and, with availability still fairly tight, rental growth is not forecast to turn negative. Rosso added that the challenge for the market would be around supply, as only a small number of investors have capacity to speculatively forward-fund or develop under the current conditions. He said: “Cash-rich, long-term investors can strike now while the values are down, taking advantage of a less crowded market.” See how Colliers compares to other agents with our On-Demand Rankings>> To send feedback, e-mail pui-guan.man@eg.co.uk or tweet @PuiGuanM or @EGPropertyNews Photo © EFAFLEX_Schnelllauftore/Pixabay