The UK partner of IRELS, Andrew Smith from Carter Jonas, offers his view on the UK industrial and logistics property market

CARTER JONAS is a major corporate property consultancy in the UK.

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Logistics demand has been holding up relatively well, buoyed by ongoing structural change and the influence of e-commerce, with ‘last mile’ units for urban delivery being a key growth area. However, the market has also been facing headwinds. Industrial occupiers have been exposed to high inflation and rocketing labour costs, putting pressure on profit margins for businesses and exacerbating the focus on cost reduction. Subdued consumer confidence and the near flatlining of household expenditure have had a knock-on effect on the need for warehouse space. The supply of new units is very limited across many key markets, and the development pipeline remains restricted. On the positive side for supply, more high-quality stock should come onto the market as subleases as occupiers release surplus space, a welcome boost to supply in key locations where vacancy is low.

Competition amongst occupiers for existing and new build product has helped maintain upward pressure on rental values despite the subdued economic outlook. Average annual industrial rental value growth peaked in August 2022 at 13.2%. Annual growth has since continued at broadly this rate, with the latest reading (April 2024) at 6.5%. On a quarterly basis, growth has been decelerating in recent months, from 2.2% in the three months to December 2023 to 1.2% in the three months to April 2024, the equivalent of 5.1% per annum, below the annual rate.

With industrial occupiers seeking well-located buildings with the correct green credentials, enhanced rental growth will likely continue for high quality stock. This, in turn, will attract institutional investor interest, and is where yield compression is more likely throughout 2024.

Industrial capital values fell sharply, by nearly 28%, from June 2022 to February 2023 (MSCI Monthly Index), as a reaction to some previous overheating in values and the upward move in interest rates / gilts (which impacted all commercial sectors). This occurred despite ongoing healthy demand and robust rental growth. Values have since stabilised and are currently 1.6% above their February 2023 level.

Carter Jonas is a leading UK property consultancy, offering a wide range of services across commercial, residential, rural, planning, development, and infrastructure. Our national network of over 1,000 property professionals operating from 34 offices means we can offer both national coverage and unrivalled local expertise.

Within our commercial division, Carter Jonas' Industrial and Corporate Real Estate teams are committed to identifying opportunities in the UK and internationally. Our recent areas of focus include Open Storage (IOS) and Paper Mills, which we believe are becoming valuable assets in the industry. Our industrial team, consisting of 15 experienced agents, works closely with major landlords and tenants, offering investment and letting agency advice, lease consultancy, and corporate real estate services. We also provide frequent market reports through our internal research team.

Andrew Smith FRICS SIOR
Partner
Carter Jonas

For a further overview of Carter Jonas, please see the below one minute video :

https://www.youtube.com/watch?v=vfB3sPeNRqc

To discover more :

https://www.carterjonas.co.uk/

To contact the team :

https://www.carterjonas.co.uk/contact