Investors poured £2.6 billion into UK logistics in 2016, 53 per cent above the long term average of £1.7 billion, making it the third highest year ever for investment volumes. All of this was against a backdrop of geopolitical uncertainly surrounding the potential impact of the UK’s withdrawal from the European Union and the US elections.
A strong fourth quarter, continued demand from online retailers and interest from overseas investors have helped drive this volume. Indeed, the fourth quarter alone saw £871 million transacted across 43 separate deals, with the total deal count for 2016 coming out at 202.
UK institutions and specialist listed property companies will continue to play a big part in 2017, however logistics is increasingly a global asset class. Global retailers such as Amazon, ASOS, Zalando and Otto are challenging preconceptions relating to customer service and delivery times. To quote Prologis, "Logistics real estate makes modern life possible".
Investors across the world are keen to deploy capital into the UK logistics sector, where online retail penetration is now approaching 20 per cent and is the highest in Europe. The current value of sterling and the UK’s stable legal structure and long teases make it even more attractive to investors.
Whilst the proportion of the market by investment volume accounted for by overseas investors varies, it hit 26 per cent in 2016 compared to the long term average of 22 per cent over the last 15 years. We anticipate that overseas purchasers will continue to look to the UK logistics sector as a way of gaining exposure to the ever-growing online retail sector.
In turn this should place additional downward pressure on prime yields, which currently stand at 4.75 per cent, as investors look to purchase only the most prime of assets.
Read more: Big Shed Briefing: National Investment