Large industrial property – particularly long-let logistics space – is set to be one of the best-performing property sectors in 2019, providing shelter for investors from Brexit-related turbulence, according to Gerald Eve’s latest Prime Logistics research.
The fundamentals of large industrial and logistics property – continuing strong occupier demand, historically low availability and a wall of capital targeting the sector – make it “arguably one of the most defensive asset classes” in both ‘deal’ and ‘no deal’ scenarios.
The forecasts follow Gerald Eve research revealing 2018 to be the second-strongest 12 months for occupational activity on record, with 50.5 million sq ft of lettings in the year, just 1% below the level seen in 2016. Availability remained flat at a historically low 6.2%, with a slowing in speculative development starts towards the end of 2018 suggesting availability will remain at this level into the short to medium term.
John Rodgers, partner at Gerald Eve, said: “Robust occupier demand and the structural shift towards online retail have created a very positive sentiment towards the sector. Given how it has flourished since 2016, it is no surprise that many investors view it as one of the few sectors with the real possibility of meaningful rental growth, and this informs its popularity as a defensive asset class.
“While reports of increased demand due to no-deal planning are currently anecdotal, and long-term increases in requirements as firms seek greater inventory are at the moment prospective, the forecast strength of the occupational market in both ‘deal’ and ‘no-deal’ scenarios underpins the sector’s allure. It is these requirements, and the weight of capital targeting the sector, that should continue to support pricing, especially compared to other, more exposed sectors.”
Nick Ogden, partner at Gerald Eve, added: “Crucially, the best-quality logistics properties still attract very strong tenants on long, often index-linked leases, and these ‘long and strong’ opportunities are of particular interest to investors seeking to reduce risk exposure in the late-run cycle. Despite this investor interest driving prime yields to record lows, currently around 4.0%, we still think the industrial sector is going to be one of the best-performing commercial real estate asset classes during 2019.”