Industrials to generate sharper returns in 2019
Industrial and logistics looks set to remain the top-performing commercial property sector in the UK, alongside predictions that total returns will sharpen.
According to a report by Colliers International, total returns from the sector across the UK are expected to narrow to 6.5% in 2019, on the back of limited and “selective” further yield compression. This compares with total returns in the “high- and mid-teens” range in both 2017 and 2018.
Continued rental growth
Across the board, Colliers has forecast 2.5% rental growth for industrial property in 2019. It expects London to post the strongest performance regionally, with an equivalent increase of 4%.
Industrial and logistics looks set to remain the top-performing commercial property sector in the UK, alongside predictions that total returns will sharpen.
According to a report by Colliers International, total returns from the sector across the UK are expected to narrow to 6.5% in 2019, on the back of limited and “selective” further yield compression. This compares with total returns in the “high- and mid-teens” range in both 2017 and 2018.
Continued rental growth
Across the board, Colliers has forecast 2.5% rental growth for industrial property in 2019. It expects London to post the strongest performance regionally, with an equivalent increase of 4%.
The research noted that nationally, sheds measuring 10,000-30,000 sq ft posted prime rental growth of 6% in 2018, marking a slight increase from a 5.5% uplift in 2017.
However, rental growth at prime units measuring more than 100,000 sq ft slowed to 3.5%, from 4.8% growth in 2017.
Len Rosso, head of industrial and logistics at Colliers, said: “Despite the ongoing political and economic uncertainty generated by Brexit, occupational demand has held up on the back of steady, if uninspiring, economic performance.
“Combined with limited new-build activity and an acute shortage of quality stock in many locations, the resulting rental growth has resulted in the industrial sector again being the standout performer.”
Land values
The research also highlighted a 20% year-on-year increase in land values, with a 70% surge on the previous year in the West Midlands in response to supply constraints.
Developers are predicted to continue a cautious approach to speculative development this year, alongside an increasing amount of build-to-suit solutions.
First Panattoni remains the dominant player in spec development, having spent around £500m to date on such sites.
Colliers said it was involved in deals spanning 20m sq ft across the UK in the past 12 months.
Declining investment values in London
Although the industrial and logistics market in London and the South East remains strong, combined deal values in the investment market dropped by a third to £1.8bn in mid-December.
London in particular saw transactions fall to under £900m, with only four deals totalling more than £50m each. The largest of these was Hyde Group’s purchase of Charlton Riverside, a four-unit scheme adjacent to the Thames Barrier.
In the South East, LaSalle Investment Management bought the Sovereign portfolio for £95m, reflecting a 4.69% initial yield.
On the other hand, occupier take-up in the 100,000 sq ft sheds market in London and the South East surged by 22% to 2.5m sq ft to the end of November compared with the previous year.
Top rents were achieved at 10,000-30,000 sq ft sheds in Park Royal, NW10, which have seen a further increase in 2018 to £20 per sq ft.
Elsewhere, the availability of sufficient power supply is expected to become a more significant issue in 2019, as warehouse automation rises.
Outside London, the Midlands was identified as one of the strongest investment markets, although a shortage in stock held back deal volumes. These amounted to £1.1bn by the end of November 2018, falling short of the £1.5bn seen in 2017.
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