Industrials back in the limelight

Following the initial shock of the EU referendum result, Markit’s UK manufacturing PMI recovered to a 10-month high of 53.3 in August, up from 48.3 in July, as work that had been put on hold in July was re-started in August.

Not only has there been a rebound in the UK manufacturing PMI to well above the 50 mark (which separates growth from contraction) but the UK manufacturing output figures have been far more positive than expected – helped by the rapid devaluation of sterling. As the Knight Frank LOGIC report for H1 2016 points out there is even more positive news for industrials on the occupier side post Brexit, given the continued growth of online retail sales, broad tenant base and general shortage of good quality building.

Industrials are now clearly ahead of both retails and offices in terms of performance. The latest IPD Monthly Index shows an annual total return of 8.9% for industrials in July 2016. This compares with an annual total return of 5.8% for offices and 3.2% for retail. The IPF consensus forecasts show that industrials are expected to remain the lead performing sector over the next three to five years.

With so much positive news it is hardly surprising to see that investor sentiment is still strong and that there is continued appetite for industrial stock. Whilst just £29.3bn has been invested across all sectors in the UK commercial property market since the start of 2016 – which according to Property Data represents an overall decline of 39% the same period last year – industrials have escaped relatively unscathed with total investment transactions in the year to date at £3.6bn, which is virtually on par with investment volumes over the same period last year.