Industrial property outperformance to continue despite Brexit headwinds

It has been all good news for the industrial sector in 2017, with short supply and high demand resulting in strong performance. 
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Categories: Industrial Brexit UK

So should your portfolio be overweight in industrials?

With only five months’ supply of new Grade A stock of over 100,000 sq ft available in the UK and rising occupier demand for warehouse space, this sector is well positioned to face any Brexit headwinds.

The continuing shift to on-line spending, which has more than doubled in just seven years and now accounts for 15% of all retail all sales, is driving occupier demand for distribution centres.

The trend is most  pronounced in London and the South East, and shows no signs of abating. These changing shopping habits are putting increasing pressure on the UK supply chain.

Consumers now expect next day and even same day delivery to their homes or their workplace, and ease of access to return any unwanted items. 

This means that warehouses need to be located closer to the consumer. Added to which there is competing demand for residential land use in urban city areas.

In terms of performance, the industrial sector as a whole has achieved annual rental value growth of 4.5% and capital values have appreciated by 12.2% in the 12 months to September 2017.

The total return for the industrial sector now stands at 18.6% per annum, with London and the South East ahead of this at 21.8% and 22.8%, respectively. This is considerably higher than both offices and retail, which have delivered annual total returns of 8.1% and 7.6%, respectively, over the same period. 

Our forecasts show industrial outperformance continuing. The industrial sector is expected to achieve an annual average total return of 9.0% per annum over the next five years, with London and the South East continuing to lead the way with above average returns of 9.9% and 9.4%, respectively.

This compares with 6.4% for retails and 6.5% for offices, against an All Property average of 6.9% per annum over the next five years.

Knight Frank's industrial property experts provide intelligent strategies that maximise returns. If you are thinking in investing in this asset class and would like to speak to us, contact Knight Frank's Industrial Property team.