Capital Markets

A rollercoster ride of initial positivity – a pause for thought - and a relentless charge

January 2020 kicked off with a sense of relief and positivity. The election and Brexit were finally behind us and the handbrake gently applied by large sectors of the market was released. 2020 was looking bright. Investors intensified their search and stock selection processes were well underway and deals were happening. In March 2020, along with economies around the world, the property and specifically, the Logistics and Industrial sector paused as the pandemic hit hard. Initially, there was significant nervousness in the market, which prompted a number of deals to either fall out of bed or pricing adjustments between 0-10% to be agreed; there was an immediate marginal shift in pricing across all sectors. However, what became clear is that as the world went on line, sheds were in demand. A trend towards ecommerce had been accelerated overnight. There was an immediate uptick in occupational demand and investors quickly caught on, a relentless charge. For the remainder of 2020, Logistics & Industrial fared well and outperformed all other sectors, with offices and retail in particular facing the prospect of low total returns as stifled, even negative, rental growth forecasts took effect. As a consequence, there remains a wave of capital still actively targeting the industrial sector. Investor confidence improved further as a result of the easing of the lockdown 1.0 restrictions and the second lockdown barely turned down the dial. Sector specific funds have been raised by major players such as BBlackstone, Exeter, Copley Point, LondonMetric and these are competing against the traditional UK and overseas funds. Standout prime transactions in the Midlands include:

2020 Headline Transactions:

Prime Yields

At the start of 2020, prime logistics yields stood at 4.75% to 5.00% and multi let at 5.25%. The spectacular shift for the sector is ably illustrated by the yield improvement over the course of the year. As at the end of 2020, prime logistics has improved 100 bps to 3.75% to 4.00% and multilets by 75 bps to 4.50%. As with a whole host of other events in 2020, this is unprecedented and yields are at their keenest since records began.

Xpanse 120, Oldbury

Knight Frank Comment

Given the continued uncertain macroeconomic climate, both domestically and overseas, the sustained low interest rate, environment, low / negative bond yields and an increasingly volatile global equities market, real estate has a compelling appeal for investors. However, it must be noted that the weight of capital targeting those assets is forcing pressure on yields and we forecast this to continue in to 2021.

The overriding sentiment to the sector is positive, and this is particularly true for logistics orientated assets, and those which are occupied by tenants driven primarily by e-commerce. It is a commonly held view amongst investors that the sector will largely remain resilient.

At least for the short to medium term the future looks bright for shed investment.