The industrial and logistics sector was at the top of the list for investors in 2019, and interest in the first few weeks of 2020 seems to indicate little or no change in this respect.
There is a resilient occupier story across most types of industrial property alongside rental growth. The pre-election Brexit uncertainty led to UK institutions being less active, which in turn provided more opportunities for property companies and private investors. Brexit will no doubt continue to affect the institutional investment market in the next 12 months, as the trade negotiations unfold and the funds slowly and selectively increase liquidity.
Demand for modern industrial investments below £1.5m is very strong. Rental growth is real for attractive smaller units as supply has not matched demand in the best locations.
In the logistics market, there is a distinct split between prime and secondary, with local authorities such as Warrington Borough Council and Chorley Borough Council filling the gap for prime left by the funds with yields moving back from sub 5% to 5 - 6%. Covenant strength and lease length are becoming more important than 12 months ago, and it will be interesting to see if these local authorities continue spending.
In the secondary market, pricing is undoubtedly becoming more sensitive to fundamental issues such as eaves height, site density and potential capital expenditure.
This strong investment market across the industrial and warehouse sectors is set to continue, but pricing has to reflect the quality of the asset more than 12 months ago. Valuations are being written down by owners that need to sell, and this need to sell is likely to increase for some.
For well located, well specified sheds there remains a huge weight of money as local authorities, overseas investors, well financed but 'property starved' property companies, and some smaller funds compete. Two rounds of bidding remain the norm.