“Patchy” is a commonly heard description of the market at present.
Q3, which includes July and August, showed just over £1.1bn of I&L transactions, not a bad outcome, but the market still feels subdued relative to the last two years. Buy-side requirements have narrowed, with competition and depth remaining for high-quality assets, but thinning for secondary.
Multi-let was the busiest part of the market in Q3 (by value), accounting for 65% of activity in the quarter. The average NIY across all MLI deals was 4.59% in Q3, which is substantially below the YTD all I&L NIY of 5.2%. This lower NIY in Q3 was driven by some large, core multi-let sales including Coventry Logistics Park, Bilton Way at Enfield and Terra 40, Greenford rather than a general improvement in overall pricing. Of course, the NIY is only one part of the yield / price profile, so do get in touch if you require more detail around reversionary yields (all 5%+).
At this point, it’s a useful reminder to say that our quarterly bulletins are based upon transactions rather than valuations, which means the basket of evidence changes Q/Q as opposed to say the MSCI index.
Another reason why volumes were low in Q3 was a lack of portfolios completing as deals are taking longer. Having rebounded in Q2 with £1.86bn of deals, Q3 measured just £220m although several portfolios have either exchanged or remain under offer including some high profile recapitalisations – a key theme going into 2024. The biggest deal of Q3 was the all share acquisition of CT Property Trust by London Metric which had a 56% weighing to industrial.
The outlook for Q4? Activity looks set to remain muted despite an uptick in sales either directly or indirectly from Defined Benefit pension schemes. The market took some comfort from the MPC holding the BoE base rate at 5.25% in September, but the sad events in Israel and Palestine provide a further reason for caution around geo-political risk.
For those with money and conviction to invest now, we think this period of reduced competition provides an excellent opportunity to acquire stock. For us, the opportunity lies in well located secondary assets where modest cap ex can accelerate rental growth. This is amplified by the chronic undersupply of new MLI stock.
Our research is based upon a long-running data set, and we do our best to ensure information is accurate. However, given the present level of off-market activity, if you have any deals that do not feature, please let us know.
If you require assistance or would like to discuss the market in more detail, please do not hesitate to contact any of the team.
