Investors are sitting on more than £16bn of dry powder allocated to the UK industrial and logistics sector, according to Cushman & Wakefield.
Appetite for industrial and logistics acquisitions has outstripped landlords’ willingness to sell for the first time in the past two years, with the most recent data from Cushman showing “very little” industrial product on the market.
The agent estimates that around 170 industrial and logistics properties, valued at around £1.5bn, are available for purchase, with an average deal size of about £8m. Some £1bn is under offer.
In its quarterly “Talking heads and sheds” webinar, Cushman suggested that larger lot size activity will speed up later this year, as private capital deployment across the sector picks up.
Prime yields across the UK ranged between 5% and 5.25% at the end of March, with core markets in London and the North West performing slightly more strongly.
Capital expenditure assumptions of a minimum £20 to £25 per sq ft have become “a new norm” this year.
Buyers await sellers
Cushman highlighted the extent of the disconnect between buyers’ and sellers’ pricing expectations.
Ed Cornwell, international partner for logistics and industrial at Cushman & Wakefield, said: “In reality, if you think that life is going to be better in six to nine months’ time, why wouldn’t you wait to sell then and just hold out for the price?
“There is a consensus that we are at the bottom of the cycle, I think, by most investors. We still need the stability in the bond markets and swap rates, but the reality is there is just so much dry powder there, so when the valve moves and it starts coming in, the pricing could sharpen quite a bit.
“The other point, though, is that we are all still absolutely believing in the occupational backstory, which is the underlying foundation of the capital market.”
Who are the occupiers?
Cushman’s most recent data, which analysed locations measuring 50,000 sq ft and above, showed that demand for logistics and industrial facilities reached 9m sq ft during the three-month period to 31 March. This was up by 4.4% on last year’s figure.
The consultancy flagged some strength coming into the occupational market through food-related businesses, both across the logistics providers and manufacturers. Notable deals during the quarter included expansions for Starbucks, Roberts Bakery, Protein Works and Haribo.
In terms of the types of space that occupiers are choosing, Cushman found that more than half (5m sq ft) of the 9m sq ft taken up during the three months to 31 March was existing space. The move signalled a shift in occupiers’ preference from bespoke facilities towards speculative developments.
Cushman’s data also showed that just shy of 19m sq ft of speculative industrial development was completed in 2023. More than 13m sq ft of that remains vacant so far this year, in addition to 6m sq ft completed in previous years.
Of that, 9m sq ft is under offer. During 2024, Cushman expects about 12m sq ft of further stock to come out of the ground.
Sally Bruer, head of EMEA logistics and retail research at Cushman & Wakefield, said: “We have seen availability fall, marginally, for the first time since Q2 2022, thanks to both the strengthening of occupier demand and a slowdown in supply coming to market.
“We are also seeing more of the older space being taken out of the market or not being brought to market at all because it is no longer operationally appropriate or is being taken out for redevelopment.”
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