Industrial sector rivals office market
Cluttons has launched its latest Commercial Property Market Outlook which indicates that the industrial sector is now showing similar performance to offices, as Cluttons predicted last year.
Office total returns for the past 12 months are at 23% with capital growth of 16.8%, compared to the industrial sector which has delivered a total return of 22.7% bolstered by capital growth of 15.1%, driven primarily by yield compression.
The last year has seen a marked shift in the property market, powered by improved economic fundamentals which drive the underlying occupier base. The broad based improvement in economic growth, aided by low inflation, has seen improvements in both consumer and business confidence, which should lead to rental growth where demand outstrips supply.
John Barrett, head of valuations at Cluttons said: “As we forecast last year, sheds are now matching offices for performance. One reason is that prime logistics take-up has improved over the past year, driven by manufacturers, especially in the automotive sector, and retailers with supply constraints in key locations.”
Apart from the strong supply/demand fundamentals aided by supply shortages due to a lack of speculative development in recent years, the case for investment in the industrial sector is helped by low obsolescence and the squeeze on land supply from higher land value uses. This is especially the case in London and the south east.
Barrett concluded: “With prime yields now stabilising across most markets, income growth is replacing yield compression as the primary driver of future performance. Average income return is at 6%, so it’s still a good time to invest in property. However this is not universal. ‘Tricky’ secondary property remains hard to sell across all market sectors and this may present opportunities for investors prepared to take risks for higher returns.”