Industrial real estate market analysis

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Industrial Real Estate is dominating the UK at the moment with sixteen recent transactions since the start of COVID (April – June 2020) making up 37.5% of total purchases totalling £375 million.

The most significant was the acquisition of Perivale Park, a 34-acre urban warehouse estate in Perivale, West London, from Federated Hermes for €227.2m (£202.5m) PRICE / AREA (FT2) £341. We noted that some units are vacant. However, Segro knows this region is an area where space is prohibitive. As the market recovers, it should provide a fantastic return on investment.  SEGRO BUYS PERIVALE PARK FOR £202.5M

perivale park industrial estate

The average across all sixteen transactions was £96 per square ft.

Companies in the UK are looking to shore up their future in several ways, and one is generating cash. If they are lucky enough to own real estate, it makes sense for some to consider cashing in.

 Operating within their former premises is still viable if they partner with a cash-rich buyer who becomes the new owner and landlord. The term given to this type of transaction is a sale and leaseback. The outcome is a win-win scenario for both parties.

 

Aviva Investors struck such a deal, £107m (€122.5m) to buy three UK logistics warehouses from clothing retailer Next plc clothing company read the following AVIVA INVEST £107m IN WAREHOUSES

Interestingly, Yorkshire and Humber featured quite heavily with six transactions including two in the north-west and west midlands.

Canny investors and tenants may be interested to know the locations of these transactions. Our research team has provided them below in the photo gallery. Click to expand and view their full address/dates they transacted.

Last Mile

The last route goods travel before reaching consumers is known as the “last mile”. Hence the name of the Last Mile Portfolio that transacted in our list in Veridion Way. These are strategically located sites that allow faster delivery of goods and services.

Outlook

A recent report that the need for supply chain restructuring, due to the pandemic, could lead to new practices to drive further demand for industrial distribution space.

Will there possibly be a need for increased inventory & Supplies?

Adjustments to business supply chains will increase the demand for warehouse space,” the report stated. “The downward trend in inventory-to-sales ratios since the early 1990s could reverse as manufacturers, wholesalers and retailers store materials and products closer to manufacturing centres and consumers.”

What’s more, the firm added that increasing e-commerce usage would lead to demand for warehousing, as consumers continue to practice social distancing, the economy is re-opening.

Major transportation centres expect to see strong fundamentals, with occupiers taking steps to recalibrate supply chains and also build automation and efficiencies into their respective distribution networks.

Rising labour costs in China and ongoing trade conflicts have prompted many global manufacturers to diversify supply chains throughout Asia in a multi-country strategy.

As a result of the COVID-19 pandemic, global occupiers with an over-dependence in one country or region may reassess their sourcing and manufacturing strategies.

For some, this translates into diversifying their sourcing and manufacturing within each region.

Notwithstanding, a widespread exodus of manufacturing capacity from China is unlikely given the sophistication of the industry, the maturity of the supply chain and China’s massive domestic consumption market.

There is no doubt that with government stimulus manufacturers in the UK will grow significantly.

An alternative view

From a portfolio managers perspective, industrial real estate was historically the grafter of the real estate market.

It offered lower growth, invariably more supply risk leading to rental tension over the cycle, and the assets were functional yet as generic in Slough as they were in Sunderland, making it challenging to deliver a sustainable edge as a landlord.

Fast forward to 2020 and that has changed, specifically for logistics assets.

The sector has been accelerating, increasing both capital values and rental growth to new all-time highs, as a record number of tenants look to enhance their e-commerce offering, or make the
transition to move their supply chain into a profit centre and central to business strategy and away from being a cost centre.

Consumer behaviour, technology and infrastructure have rapidly evolved as consumers want more convenience, more reliability on efficient technology and a better return on that finite resource, their precious time.

E-commerce is driving, high-tech logistics distribution warehouses close to the consumer enabling the shift.

There has been exceptional growth in demand as tenants seek longer lease agreements for the same highly-prized locations, which are frequently owned by the same few landlords, most of them listed. It is fair to say logistics assets have been eating the lunch of the traditional retail landlord in the process.

Since 2007, growth in the European logistics sector has outpaced overall economic growth (75% versus 20%) and studies show that for every €1bn in online sales, 125,000sqm of logistic space.

In a post-COVID-19 world, we expect e-commerce penetration will accelerate as those consumers who were previously unsure have been forced to try the e-commerce experiment and are likely to be converted.

By 2021, roughly 93% of UK internet users will use online shopping, making it the highest online shopping penetration rate in Europe, which will continue to underpin this dynamic real estate sector.

Original article

Footnote

Industrial real estate is a global term for manufacturing, production, research and development, storage and distribution facilities.

It quietly makes the global economy turn. Strategic, high-quality units keep the world’s supply chains trading, meaning our buying demands move with efficiency to consumers.