Investment market in brief
Investment volumes for distribution units match the strength of occupier demand
The strength of the distribution occupier market continues to underpin considerable levels of investment activity. Total volumes for distribution warehouses amounted to just under £5 billion across the UK during 2020, 32% up on the five-year average, with 58% committed during the final quarter of the year.
Activity was dominated by large portfolio deals, with seven of the largest ten deals purchased by overseas investors. Blackstone alone accounted for 20% of the total volume for the year, including the two largest deals: the acquisition of the Prologis Platform portfolio of 22 warehouses for £473 million and the EPIC industrial portfolio: 8 assets bought for £335 million.
In total, overseas investment made up 55% of total volumes, up on the five-year average of 45%. Activity from UK institutions was in line with the average at 23% of volumes and led by more than £200 million of transactions each to Columbia Threadneedle and Legal and General, which included the latter’s purchase of Amazon’s 2.3 million sq ft unit at Panattoni Park in Swindon. Conversely, activity by UK property companies was down to 11%, with Urban Logistics REIT and Warehouse REIT the standout purchasers.
While portfolio transactions accounted for 35% of all volumes, the regions with the greatest level of activity over the past five years continued to lead the way in 2020, with the East Midlands accounting for 20%, followed by the South East and East (16%) and the North West (13%).
According to the MSCI monthly index the average equivalent yield for distribution property ended the year on 5.53%, which compares to 5.64% a year earlier. However, the uncertainty created by the first lockdown meant yields moved out to 5.82% by July but the strength of demand during the second half of the year led to significant yield compression.
With the lack of supply in the occupational market we expect further rental growth. Investors will continue to be attracted to the comparatively long leases that the sector offers, and we therefore expect further yield compression.
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