Gerald Eve Multi-Let 2012

Returns from the UK’s multi-let industrial sector dipped during 2011, but remained positive at 6.9% despite the effect of significant economic headwinds, according to new research published by property consultancy Gerald Eve.
The firm’s Summer 2012 Multi-Let Report has revealed overall returns fell during 2011 compared to 8.3% for the previous year, with performance once again driven by income returns of 6.3%, up from 5.2% in 2010. These income returns were themselves boosted by a fall in the overall vacancy rate from 14.7% to 12.4%.

Sally Bruer, head of industrial research at Gerald Eve, comments: “Despite the dip in performance, the fact that multi-let property managed to produce a positive return in the face of some pretty testing economic conditions is testament to the sector’s resilience and adaptability.

“This resilience is most easily identified by the fall in the overall vacancy rate to 12.4%. With no single industry accounting for more than 17% of tenants by rental income, multi-let property appeals to a wide range of potential occupiers and it is this diversity that has helped the sector reduce its void rate and maintain rental income despite the prevailing economic uncertainty.”

Although returns from the sector were positive for the third year running, performance was significantly affected by the worsening economic outlook as the year progressed. Sally Bruer continues: “The combination of fiscal austerity, weak consumer confidence and the Eurozone crisis weighed heavily on the UK economy as a whole during the second half of 2011 and this is reflected in the performance of multi-let assets.

“As a sector that is an excellent barometer of the wider economy, such fluctuations are to be expected and ably demonstrate the prevailing economic pressures. We foresee these conditions remaining in place for the short-to-medium term, a corollary of which will be a tough ongoing occupational market.”


Using the information generated by Gerald Eve’s detailed analysis of the sector, the research gives some clues as to what lies ahead for the UK’s multi-let industrial sector:

For 2012, Gerald Eve forecasts the following performances for the sector:
• Total Return: 2.7%
• Capital Growth: -4.7%
• Rental Growth: -0.8%

Sally Bruer comments: “The economic headwinds that saw performance tail-off in the second half of 2011 will still be very much in evidence throughout 2012, and may be even more keenly felt, and this will be reflected in the poor returns for the sector. That said, rental income will ensure that total returns at least remain positive, helped by a strong occupancy rate that is expected to only slightly weaken.”

For the five-year period 2012-2016, Gerald Eve predicts the following average annual performances:
• Total Return: 7.7% p.a.
• Capital Growth: -0.2% p.a.
• Rental Growth: 0.9% p.a.

Longer-term, Gerald Eve anticipates that the performance of multi-let industrial property will track the slow improvement in the wider UK economy, with gradually growing rents and falling vacancy rates leading to improved rental income over the period.

The resilience of the multi-let sector saw it become something of a safe haven for investors during the downturn, and it was this inflow of money that mitigated negative capital growth over recent years. Investors will maintain an ongoing aversion to risk and a sharp focus on prime assets, but a shortage of available product will mean that pricing for non-prime assets will be keen and this will see capital values on the whole dip in marginally over the next five years.

The strongest market conditions in 2012 will again be clustered in London, the South East and the East, with a few outlier locations such as Bristol, Cardiff, Manchester and Northamptonshire enjoying above-average conditions. It is a similar story for the longer 2012-2016 period, with London, the South East and the East benefitting from the best conditions alongside a handful of regional markets such as Bristol and the Firth of Forth. The majority of the remaining regions will suffer below-average market conditions.

This was the fourth edition of the report undertaken by Gerald Eve. Data from year end 2011 was analysed for some 12,680 units spread across 1,119 estates, with a total capital value of £5 billion. This represents 33% of the IPD Standard Industrials universe by capital value and 40% by number of properties.

A copy of the latest Gerald Eve Multi-Let report can be downloaded from the ‘INSIGHT’ section of the website.