With investor demand into the industrial and logistics sector anticipated to be weaker this year compared to previous years off the back of macro-economic turbulence, and retail bearing the brunt, certainly initially, from the resulting decline in consumer-spending, it is clear that we are amidst a cautious period for sheds.
Many investors will use this as a time to consider their options; however, there will undoubtedly be opportunity for notable transactions to take place. So, with that in mind, what can we expect to see for the remainder of this year?
Well, it is important to note that industrial and logistics property is expected to show relative resilience. BNP Paribas Real Estate forecasts prime rental growth for the sector across the UK to continue for the coming 4 years, however, there is no masking the sudden rise in prime yields to 5% in Q3 2022.
With the UK’s economic conditions somewhat more favourable towards international capital, we’ve seen, and will continue to see, a lot more foreign investment pouring in. BNP Paribas Real Estate data indicates that most of UK investment acquisitions in the last year have been from overseas investors, and that volume more than doubled the long-term average.
According to CoStar, 80% of shed investment volumes, in deals comprising of over 100,000+ sq ft industrial space, came from foreign buyers. Overseas sales volumes have been generated from buyers including Singaporean GIC and Global Logistic Properties, European investor EQT and US companies Realty Income, Blackstone and Starwood Capital.
The influx of activity from US investment has been widely felt in particular. An example of this would be in Q4 2022, the Blackstone-owned St Modwen purchased 170,000 sq ft of the Hatfield Business Park for circa £50m, representing a NI yield of sub 4%. This occurred just a few months after purchasing the Westland Industrial Estate in Hayes for £83 million. US investors are also very active at the moment with the likes of Boreal, Cabot, Copley, Kennedy Wilson, as well as the South African Leftfield, all out looking to do deals.
Recent Asia-Pacific investment activity includes the Singapore pension fund GIC Real Estate’s purchase of the Project George Portfolio for £425m, and they have since made further European investment with a German logistics portfolio. Australian group Goodman acquired Staples Corner Business Park for £180m adding to their significant portfolio of Greater London holdings with a medium-term refurbishment redevelopment outlook.
An indication of things to come I’d say is more struggling retailers looking to balance the books by selling their assets in sale and leaseback deals. Alternative transactions may come from the sale of regenerated property, which has been upgraded before being sold for profit. We can also expect foreign capital to replace UK REITs and UK Pension Funds in securing prime assets in the months to come.
Watch this space. It’s set to be a telling time for the sector, but its all eyes on international investment.
This first appeared in CoStar on Monday 30th January.
