Improving Confidence

The dust is starting to settle on a tumultuous period for the investment market, with expected cuts to the base rate beginning to pave the way for improving confidence over the year ahead. Meanwhile, as the market enters a new cycle, expectations of continuing rental growth should see industrial once again outperform the wider market. 


Total volume across the industrial & logistics sector amounted to £6.6bn in 2023, down 44% on 2022 and paling in comparison with 2021’s record high of £15.2bn. However, amid a challenging year for the investment market generally, the sector still managed to outperform in terms of both activity and returns.

Reflecting relatively sound fundamentals in the occupier market, industrial and logistics accounted for 30% of the combined volume across the three core commercial sectors in 2023, significantly ahead of the long-run annual average of 17%. Volume was also 20% above the pre-pandemic annual average, which compares well with other sectors, most notably offices, where 2023 volume sank to a record annual low.

The steep drop in y-on-y volumes also largely reflected a lack of major transactions alongside a significant recalibration in pricing since mid-2022, as opposed to a collapse in transactional activity. 2023 saw only 11 deals over £100m and an absence of transactions in the £200m to £400m lot-size bracket for the first time since 2008. Hence, Blackstone’s £480m purchase of the Harbert/Canmoor Portfolio, in Q2 2023, was the year’s largest deal by some distance.

Industrial Investment Volume

Investment By Lot Size


Distribution warehouses continued to dominate overall volume in the industrial sector in 2023, albeit to a lesser extent than seen in the two prior years. At £3.7bn, total distribution warehouse volume in 2023 was 49% down from 2022 and the lowest annual total since 2019, but nonetheless commanded 56% of total volume in the wider sector.

While volume in the multi-let arena also slipped back in 2023 compared with the boom years, it was slightly more resilient than distribution relative to trend. Including portfolios, multi-let volume of £2.9bn was only 36% below 2022’s level and only 10% below the five-year annual average, albeit this apparent resilience largely reflects the focus of the boom period towards distribution. 


The improvement in financial conditions seen at the back end of 2023 came too late to be reflected in volume. Q4 2023 saw only £1.2bn of industrial & logistics change hands, the lowest out-turn since in the pandemic-afflicted period of Q2 2020 and 51% below the quarterly average. However, with volume affected in part by a number of key delayed deals and signs of improving sentiment entering the market, Q4 2023 is expected to mark the low-point.

The first half of 2024 should deliver a slight improvement on Q4 2023 volumes, while expectations of a sequence of base rate cuts later in the year should pave the way for a clearer rebound in H2 2024. With a significant amount of dry power looking to invest in UK industrial & logistics, improving financial conditions and more confidence on pricing will be key to bringing more sellers into the market, with total volume expected to climb to circa £7.5bn for 2024 overall, a modest but tangible improvement upon 2023.


Much of the weight of money that exists for industrial & logistics sits with overseas buyers, including those already familiar to the UK market and relatively new entrants from Europe and the Middle East that are seeking exposure. Overseas buyers continued to drive volume in the sector, with total purchases amounting to £3.5bn in 2023. And, in typical fashion, overseas buyers were dominant at the larger end of the market, behind seven of 2023’s ten largest deals.

2024 promises to be no different, with overseas inflows forecast to account for approximately 60% of volume for the year. Blackstone, through its various vehicles, is likely to continue ramping up its exposure to UK industrials, while the likes of Cabot, Clarion Partners Europe and GIC have raised well over £1bn to invest in the sector. Alongside sound fundamentals in the occupier market, the extent of repricing in the UK industrial sector adds to its appeal, with prime assets offering relative value in a global context. 

Average Lot Size By Investor Type


While the market has been quieter on the transaction side, recent months have seen several major corporate moves in the industrial and logistics space, particularly among the REITs. Examples include LondonMetric’s merger with LXI REIT and Tritax’s takeover of UK Commercial Property REIT, which together amount to a combined capitalisation of over £10bn. Meanwhile, at the time of writing, Urban Logistics REIT is battling out with Custodian REIT to secure a merger with Abrdn Property Income Trust.

The correction impacted heavily on the REITs, reflected in near-record disposals of £974m in 2023. However, the recent burst of consolidations in the REIT space bodes well for activity in the market, with the creation of these new, larger vehicles driving scale and paving the way for fresh strategies of disposals and acquisitions. For example, since its move for LXI REIT, LondonMetric is now underweight to industrial and known to be back in the market for acquisitions.


A lack of openly marketed prime stock was key to the subdued volume seen in Q4, a situation frankly not helped by a lack of distress flowing from the recent correction. However, as 2024 progresses, a growing number of investors will come under pressure to decide on their asset allocation strategies. Some will opt to hold and refinance, while others decide that the time is right for selective disposals.

Much is made of the institutions as a ready source of stock for would-be buyers. Given the relative liquidity and strength of buyer demand for UK industrials, many institutions opted to dispose assets in 2023, reflected in total net selling of over £1bn during the year. Even without clear distress, further pressure to sell may come from defined benefit pension funds, as higher interest rates have driven liabilities down faster than asset values.

However, institutions are generally expected to be less inclined to sell over the year ahead, as many have already sold as much as they 
can without risking under-exposure. Indeed, several well-known institutions were actively buying in 2023, most notably M&G, with £135m of purchases across 10 deals over the year. While Abdrn is still in sales mode, M&G, Aviva and Nuveen are all very much actively seeking opportunities at the current time.

Prime Yields & 10 Year Guilts


Amid an extremely challenging year for the investment market in 2023, industrial yet again rose to the forefront of performance. While other sectors saw a continuation of price erosion, most notably offices, a degree of stability returned to the industrial sector after the severe correction in late 2022.

According to MSCI’s quarterly index, UK industrial has bounced back from being the worst performing sector in 2022 to the best performer in 2023. While UK industrial saw relatively unspectacular returns of 4.1% in 2023, it was some way ahead of the wider market, with All Property returns of -1%. This outperformance stems largely from relative stability in industrial values, with MSCI reporting flat growth of -0.3% over the year. This picture of stability was also echoed across industrial’s key sub sectors, with Rest of UK Industrials (i.e. regional multi-lets) slightly outperforming with annual returns of 4.9% for the year.


Positively, the industrial sector is forecast to continue to outperform the market over the medium term, albeit to a far lesser degree than seen in recent years. Latest figures from the independent forecaster RealFor predict that UK industrial returns will strengthen to 8.4% per annum over the period from 2024 to 2028, running marginally ahead of All Property, where returns of 8.0% are forecast. 

The main driver behind industrial’s ongoing outperformance is a continuation of rental growth, with RealFor forecasting UK Industrial growth of 3.0% per annum up to 2028, compared with 2.2% for All Property. And, reflecting stronger rental growth forecasts for the London area, returns are expected to be led once again by London estates, with forecast average returns of 9.4% per annum.


The above forecasts are relatively conservative, certainly with regard to rental growth, and are based upon the average position across a range of assets in terms of location, size and quality. Given the focus of demand towards high quality, future-proofed assets, increasing bifurcation in performance is expected to be seen between the best and worst assets into 2024 and beyond. Indeed, at the prime end of the market, a degree of yield compression is expected before the end of 2024, assuming expected cuts to the base rate take place and the improvement in finance costs is sustained. 

In contrast, investors are likely to remain more cautious towards secondary assets (in terms of both product and/or location). This reflects a combination of increased perception of risk and concerns over accelerated rates of obsolescence, particularly for assets which fail to meet growing demand for sustainability. As a result, we can expect to see significant variation in return performance at the asset level, both above and below the average forecasts. 


The development market was hit especially hard by the recent correction, but green shoots are already starting to appear thanks to a rebasing of land values, relative stability in build cost inflation and evidence of continuing rental growth. 2024 has already seen several prominent spec fundings agreed at prime locations, from the likes of Mirastar, Logicor and JP Morgan with more to come, albeit with the risks of development more sensibly reflected in appraisals.

Following a £900m torrent of build to suit fundings in 2022, last year yielded just one solitary deal, namely Stoford’s £8.3m sale of a Sainsbury’s warehouse in Exeter. While build to suit deals are likely to remain dominated by the balance sheet investors, the expected improvement in financial conditions and relative stability in yields is set to drive an improvement in this normally-key part of area market.

Meanwhile, as outlined elsewhere in this report, appetite towards retrofitting of existing assets is set to grow and become a major aspect of the market across the next cycle. Growing considerations of embodied carbon emissions bode well for demand for taking existing assets, while the costs required to restore them to the appropriate standard is relatively attractive compared with other sectors.

Forecast Components For Returns

Get in touch