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Research - 04/02/2016

Investors turning to development

£5.6bn of industrial assets changed hands in 2015, down on 2014’s high of £6.6bn, but nevertheless one of the strongest years on record for the sector, according to new research from Lambert Smith Hampton.

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Key findings from the Q4 2015 edition of our Industrial Investment update report include:

  • Q4 saw £1.2bn of industrial assets change hands, marginally below Q3’s level. 
  • Portfolios dominated Q4 volume with a flurry of multi-let portfolios transacting which include MStar (IOAM), Lion (Cordatus) and Wellington (DTZIM / CBREGI / Cornerstone). Q4 saw several single-let distribution portfolios introduced to the market, with Saturn (£100m) and Phoenix (£200m) likely to complete in Q1 2016.
  • Q4’s standout distribution deal was TH Real Estate’s £87m purchase of the Click Portfolio from Prologis. Other notable deals included Standard Life’s £18.2m purchase of The Big Blue in Birmingham, let to WH Smith for 18.5 years, and London Metric’s £29.26m acquisition of the DHL Unit on Gillette Way, Reading. 
  • Q4 also provided evidence of greater caution. While the majority of quoting prices were either achieved or exceeded, there were a handful of investments which failed to entice serious interest due to unrealistic pricing aspirations. 
  • For example, Levi Straus’s distribution warehouse in Northampton failed to secure a purchaser at the quoting price of 6.25% NIY in 2015. This four year sale & leaseback (two year TBO) has subsequently returned to the market at 6.95% NIY. 
  • The market is returning to core fundamentals, with rates of yield compression easing down steadily from a year ago. Prime yields are expected to remain broadly stable during 2016, with rental growth helping to drive income and supporting asset management angles. While secondary assets will continue to attract strong demand in core locations, investors will be more cautious towards pricing in weaker locations.
  • Positive occupier dynamics in the sector have seen increasing capital being deployed to speculative development. There is now over 9m sq ft of space under construction across the UK, with scope for more to come forward in 2016.
For more information, contact Alex Carr, Philip Colman or Charlie How.

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