The continued strength of the occupational market combined with record low levels of vacancy has meant that the investment market has continued to see strong levels of rental growth. This, in turn, is driving unprecedented positive investor sentiment towards the sector and a record H2 investment volume of £5.15bn, excluding corporate mergers and acquisitions. Total 2021 volumes now stand at £10.42bn, which eclipses the previous annual record set in 2020 by 73%.

Whilst the volume of portfolios traded reached £4.10bn in 2021, accounting for 39% of total investment volumes, it should also be noted that the market is witnessing a rise in both the number of single-unit deals and average lot sizes. Indeed, excluding portfolios, in 2021, there were 315 single unit transactions recorded by Savills, up 152% on the long term average and the average lot size reached £20.1m, itself a rise of 32% on the long-term average.

With Blackstone alone accounting for close to £3bn of deployed capital, including their corporate acquisition of St Modwen, and many other overseas investors entering the market for the first time, it is no surprise that overseas investors accounted for 55% of the total market, the highest proportion ever recorded and up from just 20% in 2018. This has largely been at the expense of UK institutions who, in 2018, accounted for 32% of the market, falling to just 16% of the market in 2021.

The continued weight of capital in the market will continue to put downward pressure on Savills prime yields, which now stand at 3.25% for both logistics and multi-let industrial estates. With the occupational market showing no sign of slowing and supply remaining constrained, it is likely that rental growth will continue to outperform forecasts. Indeed if the trajectory of the last two quarters is maintained, then it is likely that many markets will see rental growth of at least 10% in 2022. This optimistic outlook will ensure investors continue to compete for the best assets, which, in turn, will lead yields to compress even further. However, with continued upward pressure on inflation, further interest rate rises are expected, and this may limit the extent of yield compression in 2022 when compared to previous years.

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