Well-located retail warehouses and logistics represent the strongest investment themes in the UK over the next year, says Savills Investment Management’s latest outlook report.
The report suggests retail warehouses close to transport links and those positioned to take advantage of e-commerce trends represent good investments.
It also highlights opportunities in logistics properties with the potential for demand growth that are located near cities such as greater London, the “big six” cities of Birmingham, Bristol, Edinburgh, Glasgow, Leeds and Manchester, as well as Oxford and Cambridge.
Locations around major transport corridors and ports, particularly south of Birmingham, should also present logistics opportunities, the report says.
Retail investment volumes in the UK have been dampened by a combination of pricing, lack of supply and increased returns in other sectors, while some retailers have also seen margins squeezed due to cost-push inflation from a weaker pound, the report says.
But Savills IM expects these impacts to have topped out for the time being and notes that the better-situated, dominant retail warehouses, which are well placed to take advantage of trends in showrooming and click and collect, are performing well.
The report also notes that an imbalance in the modern logistics segment, with demand continuing to outstrip supply in many regions, means rents are seeing an upwards trend, while rent-free periods are shortening or non-existent in some prime locations.
Despite some uncertainty regarding the outcome of Brexit negotiations, the occupier market remains strong, especially for modern and efficient space in locations strategically placed to meet increasing demand for e-commerce, the report says.
Irfan Younus, head of research, Europe, Savills Investment Management, said: “The continued rise in e-commerce and omnichannel retailing is leading to a bifurcation in brick-and-mortar retail performance: those stores and locations positioned to take advantage of this multi-channel approach to retail – where convenience shopping is increasingly important – are leaving behind those stores and areas that are unable to successfully adapt to new shopping patterns.
“The UK industrial sector continues to benefit from the rise in online shopping and the artificial intelligence revolution, increasing demand for facilities and reducing unit labour costs as automation picks up.”
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