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‘NORMALISED UNCERTAINTY’ TO FIRE STARTING GUN ON INDUSTRIAL INVESTMENT

Sector: Industrial & Logistics | Contact: Nick Ogden

The ability of valuers to remove material valuation uncertainty clauses will help industrial investment activity surge.

It’s no secret that the industrial and logistics sector has not only been relatively unscathed by the coronavirus crisis, but in many cases actively boosted by it. Shifts towards online retail have been accelerated by the lockdown, and warehouses are set to be the major beneficiaries. Investor interest in the sector has continued its pre-crisis upward trajectory.

But while investment activity has been ticking over during the past three months, it has been subdued compared to pre-crisis levels. In part this reflects an understandable caution on all sides, but a factor has also been the insertion of material uncertainty clauses (MUCs) in valuation reports. Although their purpose has been misunderstood by some, these proved particularly challenging for funds, with some effectively unable to trade while such clauses are in place.

But the RICS’ informative that MUCs may no longer be appropriate on industrial and logistics assets will remove this partial blockage and see more parties return to the market. Investment activity is rising  in tandem as pent-up supply and demand is unleashed into the market.

Already, we have seen the number of assets being openly marketed rise dramatically in recent days; the unscientific “Brochure Index” – put simply, the number of sales PDFs in my inbox – has jumped. From our side, it’s been good to get some assets we’ve been prepping out into the marketplace with confidence they are saleable.

As before, there is plenty of capital targeting the sector, and we expect to see this grow further in the coming weeks. When SEGRO raises £680 million to take advantage of emerging opportunities, you get some insight into how strong the prospects for the industrial and logistics market are.

While more assets are being marketed, demand looks set to outstrip supply for some time to come. This imbalance has been exacerbated by the construction delays and reduced appetite for development risk caused by the lockdown.

Functioning real estate markets have always been underpinned by valuations that all parties can be confident in, and it was only proper that MUCs were included in the teeth of the crisis, and they still remain appropriate for most sectors. But as market activity and normalised uncertainty returns to the industrial and logistics markets, the need for them has dissipated, and their removal will fire the starting gun on what remains real estate’s strongest investment market.

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Nick Ogden

Partner