Given the fact that capital markets all but ceased at the height of the initial lockdown it is remarkable therefore to report that investment volumes for distribution warehouses have reached £4.7bn, a 25% increase on 2019, a 121% increase on the long term average and shattering the previous high water mark of 2014 by over £500m. As it became clear how due diligence could be undertaken and rental growth assumptions underwritten, the market rebounded strongly with 76% of 2020 capital deployment occurring in the 2nd half of the year.

Whilst there have been notable single building transactions, the real story of the year has been the fact that 44% of the market has been dominated by the purchase of portfolios. Indeed 2020 saw the largest industrial deal in UK history, excluding corporate sales such as the purchase of Logicor by CIC, when Blackstone paid £473m for the Platform portfolio, a collection of assets sold by Prologis following their acquisition of Liberty.

A further key trend has been the change in purchaser profile with overseas investors accounting for 52% of the transaction volumes equalling 2017 as the joint highest proportion ever recorded. Proportionally, this has been at the expense of the UK institutions who accounted for just 18% of trades, down from 21% the year before. However, in absolute terms UK institutions traded just over £1bn worth of stock which has been broadly stable for the last four years.

The sheer weight of capital and sentiment surrounding the market has seen further downward pressure on yields which now stand at 3.75% for both distribution warehouses and multi-let estates moving in 50bps and 25bps respectively in the last 12 months.

Moving forward we expect to see investor sentiment continue to remain strong around the UK logistics sector buoyed by the strong metrics from the occupier market which continues to outperform.

With vacancy falling in most markets it is fair to assume continued rental growth which continues to underpin investor interest in the sector. Combined, these factors create conditions that will continue to put downward pressure on yields. However, previous issues regarding access to Grade A stock have not been removed and it is therefore likely that increasing numbers of investors may start to consider edging further up the risk curve and consider the forward funding of speculative development as a method to access the market at a discount.

_{Read the articles within Big Shed Briefing below.}