Pricing
The industrial and logistics sector's rapid growth in recent years has been at a pace unmatched to that seen before. Rents have increased significantly, and until more recently, yields have tightened, both of which combine to make the development of vacant sites - to provide new units - an appealing opportunity.
The lack of a coherent marketplace, particularly outside London and the prime South East, has constrained rental growth. Rents vary widely and will depend upon location specifications and services offered. We believe well-specified sites can secure premium rents above those currently seen in the market. London and the South East command the highest rent and are significantly higher than the other regions.
The recent shift in yields on industrial stock will no doubt encourage more land owners and developers to delay development and, in turn, look to secure alternative income from a site.
INDUSTRIAL 12-MONTH RENTAL GROWTH
Source: MSCI
RANGES OF OPEN STORAGE RENTS PER ACRE 2022
Source: Avison Young
This can be evidenced by quoting terms for land at Hams Hall, Birmingham - a prime logistics location.
Site 1:
Available from £65,000 per acre per annum for an unserviced, Type 1 (relatively level) surfaced, secure site, which is only available with a term of between 9 and 12 months.
Site 2:
A site in close proximity provides onsite security, mains services and somewhat better surfacing (mixture of tarmac, concrete and type 1). For this, occupiers are required to pay rents approaching £100,000 per annum per acre. Terms are available from 12 months upwards.
Alternatively, the site could be taken on a long-term basis (5 + years) and once fully surfaced (concrete) at £130,000 per annum per acre to reflect the improved surface covering.
UK investment market
There is a lack of transactional evidence within the investment market. However, we are seeing an increase in demand for investors and occupiers looking to acquire sites. Moorfield and Peloton announced a £100 million JV in 2022; others include Marchmont, Industrial Securities / Cerberus and ARA Dunedin. These organisations appear focused on income-producing opportunities rather than developing sites, with investors particularly drawn to the following facets:
- Lack of available industrial land, especially in the Greater London and South East markets
- Underlying residual value in the medium to long term for redevelopment
- Minimal capital expenditure with property management required
- High occupational demand and rental growth, which is being witnessed in this sub-sector