The positive sentiment in the occupational market continues to feed into the logistics investment market, with investment volumes for the half-year reaching £3.8bn. This is a 239% increase on H1 2020 and already exceeds the five-year annual average investment volume, which stands at £3.7bn per year. Given that, traditionally, the latter part of any year sees a stronger performance in the investment market, it is all but certain that 2021 will see another record year for capital deployed into the logistics sector, exceeding the £4.7bn transacted in 2020.

Whilst there have been notable portfolio transactions, such as BentallGreenOak purchasing a £300m portfolio from Morgan Stanley and Blackstone acquiring the Albion and Vantage portfolios for a combined £469m, there have also been a number of high-value single asset purchases from overseas investors. Savills Investment Management (advised by Savills) has purchased the largest single-let unit this year, paying £161m for an Amazon fulfilment centre in Bardon, and Deka (also advised by Savills) has purchased the John Lewis Distribution Centre in Milton Keynes for £100m, reflecting a net initial yield of 3.75%.

We expect this trend to continue in the second half of the year as the logistics market presents an interesting dichotomy for UK Institutions. For funds keen to raise cash either in line with strategy or more promptly to meet redemptions, the logistics market offers a ready pool of experienced buyers often able to pay prices above valuation. In addition, many other investors still remain underweight to the logistics sector and are prepared to invest in a market with strong rental growth prospects and capital growth maintaining its upward trajectory.

The sheer and ever-increasing weight of capital combined with strengthening sentiment across the market has seen further downward pressure on yields, which now stand at record low levels of 3.5% for both distribution warehouses and multi-let estates, moving in 100 bps and 75 bps respectively in the last 12 months. The question on many investors’ minds now will be how low can they go and where can we find value?

With the occupational market showing no sign of slowing and new Grade A product being created from speculative development and large-scale build-to-suits, there will be increased competition for the best assets and we expect to see further downward pressure on yields in H2. Investors searching for value would be advised to examine what refurbishment opportunities exist for well-located, second-hand assets that are either vacant or have upcoming lease events. Such opportunities will present options to deliver better quality stock into a supply starved market.

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