By Edward Norton
AS optimistic as we always remain, it is fair to say that the UK industrial and logistics market has fared even better than expected in 2018, following on from a storming 2017. Although value is becoming harder to find for both investors and occupiers alike, the dynamic nature of the sector is certain to provide fresh opportunities.
As the LSH UK Investment update for Q1 reported, the industrial and retail sectors were 'oceans apart' with the polarisation between two of the core market sectors being as extreme as many in the market have witnessed. Industrial and logistics remains the darling sector and whilst value may be harder to find, the growth and increasing sophistication of e-commerce will continue to provide the foundation for investment over the coming 12 months.
In Q1 the overall volume of investment activity was £13.6bn with the industrial sector accounting for 1.9bn, a record level for the first quarter and 25 per cent above average.
The positive impact on Northamptonshire, which has a strong industrial and logistics heritage as part of the Golden Triangle, is no coincidence. Tight supply continues to drive rental growth and there is renewed vigour for development which is reflected in the appetite being shown by investors seeking value, and developers keen to deliver the next pipeline of buildings.
Indications are that development appetite has improved and with entry yields for standing stock at an all-time low, investors are more receptive to development funding within proven markets. However, with the sharp increase in land values, up to 20 per cent in some cases, developers who acquired their land some time ago have a massive first mover advantage at this stage in the cycle.
Looking at growth in the logistics market across all Lambert Smith Hampton office regions, the East Midlands ranked highest in 2016 and in 2017 was only marginally behind neighbouring West Midlands. Our region had the strongest rise in industrial supply, and the construction of more large scale speculative industrial developments than any other part of the United Kingdom. This follows both several new build-to-suit schemes including Brackmills Central, schemes for tenants such as Black & Decker and Decathlon, and a wave of speculative industrial development in response to increasing occupier demand.
The industrial sector is not without its challenges. These include imminent interest rate rises and ongoing uncertainty in relation to Brexit, specifically the prospect of import and export tariffs. Additionally, Minimum Energy Efficiency Standards (MEES) now make it unlawful to let a building which fails to meet the minimum required EPC rating of E. Initially, MEES applies only to the granting of new leases and lease renewals, but from 2023 will extend to all active leases. At present, there is only anecdotal evidence that the implementation of MEES are influencing commercial property investment markets, but this position may change in the future.
Knowledge is power and the challenge is, as always, ensuring the right product is delivered to the right market at the right time. For Lambert Smith Hampton, our challenge as always is ensuring the right advice is delivered to our clients at the right time so that they benefit from that competitive edge.
Considered valuation advice is vital in ensuring that reported values accurately reflect changing and improving markets, and this impacts on all types of client services we offer, from commercial lending, planning and development through to lease advisory and business rates advice.
I am delighted to have joined the Lambert Smith Hampton Valuation Team based in Northampton at an exciting point in the market cycle. The fact that the team has expanded in response to demand speaks volumes about the region's future prospects and I look forward to my role in its ongoing evolution... #LSHKnowsValuation.