Industrial property investment: How is the sector standing in 2013?
A new report by Jones Lang LaSalle has revealed that the industrial market in the UK remains a top sector for buyers to invest in.
Demand and availability
At the end of December 2012, total supply in the sector was 327.4 million sq ft, which is 1.6 per cent lower than in September 2012. Furthermore, availability also fell by 2.6 per cent in the same period, suggesting that more investors are snapping up properties and making the most of the favourable market conditions. As the economy generally picks up, with a growth of 0.2 over cent over 2012, demand within the sector is set to rise even further, with there already being positive forecasts for the end of 2013.
It was not all good news, however, as take-up of units from 1,000 sq ft and upwards had fallen by a mammoth 22 per cent from 2011. Only two regions in the UK saw increases in take-up over the year, which were the north-east and south-west of England at 11 per cent and two per cent respectively. Wales recorded the largest drop of transactions, with a fall of 46 per cent.
There is the suggestion that this availability has fallen because of a major shortage of Grade A supply across the UK. With there being little speculative development occurring across the country (there only being 744,000 sq ft of this nationally in February 2013), industry analysts are calling on the government to invest more funds into industrial units for sale. This issue is so problematic that total availability by the end of 2012 was the same as just under three-and-a-half years of demand. Seven of the 11 recorded regions all saw falls in availability, with the West Midlands faring the worst, showing a reduction of 7.1 per cent.
Rental values and yields
Across the year, prime rental values generally remained unchanged, which will undoubtedly be good news for investors. Rents slightly increased in markets which experience a prime stock shortage, as competition grew, but it wasn’t too dramatic. At the start of March 2013, prime yields for multi-let estates were around 5.75 per cent in London and the south-east and 7.25 per cent in the major regional markets.
What does the future hold?
The Office for Budget Responsibility (OBR) has estimated that GDP growth will set at 0.6 per cent in 2013 and then at 1.8 per cent the following year. This, in turn, should boost industrial take-up, as long as speculative development follows in tow, especially in central core locations.
The report estimates that there will be some rental growth in the next year, but it will be centred in core markets such as west London, the Thames Valley and prime regional markets. As investor demand continues to boom in London and the south-east of England, yields will remain firm this year, meaning that potential buyers should shift their gaze towards their sector.
For now, like all sectors, the market paints a mixed picture, but for investors looking to dip their toe in the industrial pool, it may be worth taking advantage of the generally-positive conditions.