Experts forecast a change in investor focus at Colliers’ annual Industrial & Logistics webinar
Investors focused on the industrial and logistics sector are expected to hone in on core and core-plus opportunities in 2025, as more favourable market conditions prevail.
Last month more than 400 attendees tuned into Colliers UK’s annual webinar titled Creating Value in a Transforming Market which featured a market presentation by UK head of Industrial & Logistics Len Rosso and head of Industrial Research Andrea Ferranti. The update was followed by a panel discussion featuring Charlie Withers, development director from Tritax Big Box REIT, Jason Pickering, Capital Deployment director at Prologis and David Kos, director in Colliers’ Capital Markets team, chaired by Jessica Middleton-Pugh from Green Street News.
The webinar provided a platform for Colliers’ experts to share their views on the market, concluding that 2024 big box occupational activity is now back in line with the five-year pre-Covid average and take up will surpass last year’s total of 24 million sq ft. Colliers predicts that the speculative development slowdown will cause a pinch in supply next year, supporting sustained rental growth in excess of 4.0 % across the UK on average until 2028.
With the expected reduction in borrowing costs during the next 12 months, the commercial real estate house view is forecasting that in a highly capitalised market, investors will increasingly be attracted by core and core-plus opportunities.
67 % agreed core and core+ markets would see an uptick in 2025
During the webinar Colliers asked attendees whether they envisaged a significant uptick in transaction volumes of core and core+ product next year, to which two thirds of respondents (67 %) agreed (17 % reported as unsure, and 16 % responded no).
This sentiment was shared by the panellists. “I think that the investment market has a stronger level of sentiment currently than the occupier market,” said Pickering. “After a slow couple of years, we’ve definitely got to a point of real momentum in the market, pricing has reached a point of equilibrium with buyers and sellers expectations aligned, so transactions are happening.”
Anecdotally he shared: “There’s been an increase in institutional capital that’s come back into the market over the summer and there have been a handful of processes where there’s been pretty aggressive bidding, in some instances more than 10 bidders, turbo-charging the price.”
Colliers’ Ferranti explained: “The risk-free rate is currently elevated. The 10-year UK gilt yield for Q4 is estimated to stabilise at around 4.25 %, resulting in a yield gap between prime regional warehouse yields at around 100-125 basis points. This tells me that the market is highly capitalised. Pricing has held steady because of stronger investor appetite for industrial assets, over offices and retail, as a result of the structural changes accelerated by Covid-19.”
Location remains a key driver for the majority of active investors explained Colliers’ Kos: “Our clients are consistently telling us that they won’t compromise on location and in most instances would rather buy a poor-quality building in the best location, not the other way round. We are seeing this playing out in the market with assets in prime locations in West London, Birmingham and Manchester trading at a strong premium in recent months.
“We are closely monitoring London and the South East markets given the question mark around affordability of rents, driven by an extraordinary rental growth in recent years. As a result some occupiers are increasingly considering alternative locations further afield up the M1, M40, M4 and M3 corridors to find more value for money. These markets have benefited from this outward ripple effect from London and we are experiencing record rents consistently being achieved.”
However, London remains a key investor hotspot; Prologis’ Pickering explained that the firm has also been acquiring covered land plays such as their acquisition at Western Avenue Business Park, Park Royal – a stabilised investment with leases expiring by the end of the decade where there is an opportunity for future redevelopment and repositioning.
“What that gives us is optionality for a higher and better use potential,” Pickering said. “We have assumptions to where that asset goes in the next five to 10 years, but it could be different. Adjacent users include film studios, roadside retail and data centres for example. Really that acquisition was about getting strategic land, in a tight constrained market.”
Considering occupier demand and future warehouse development Rosso added: “We believe that as the debt environment improves the build to suit market will start to pick up again next year, also as a consequence of reduced warehouse availability, because of the slow down in speculative development.”
Charlie Withers from Tritax gave an insight into views from the customers he works closely with. He said: “From an occupier perspective location is important but there are other drivers behind their decision making in relation to power and people. Occupiers are slightly more prepared than investors to look at off-prime locations than they would have done previously. I would say that prime locations from an occupier perspective may have widened, and we’ve seen that through certain transactions recently.”
Positive conclusions
Overall, there was a positive consensus across the panel, highlighting the recent macroeconomic news on UK inflation and global trends on interest rates as a step in the right direction.
Withers reminded the audience: “If the new government does deliver its 1.5 million homes over the next five years, each home has a baked in requirement for about 69 sq ft of logistics. On an annualised basis that means in excess of 20 m sq ft of logistics space is needed every year, which is a strong tailwind for our sector.”
Watch the webinar highlights here.
