During 2012, £2.587m worth of industrial investment properties were transacted throughout the UK. Although this number was down from the 2011 level (£3,322m), it still represents over 8% of the total commercial property investment market.
The banner of ‘industrial’ property covers a wide range of buildings including the increasingly popular multi-occupied estates which are common place in towns and cities up and down the land.
Across the East Midlands region, prime yields in the sector remain stable in Nottingham and Derby (7%) but improved slightly in Leicester down from 6.75% in 2011 to 6.5% in 2012. It would appear that the sector is holding up well, but what about prospects for 2013, not only in terms of volume but also yields.
Forecasts from IPF Research Programme indicate that in 2013 there will be a modest fall in rental value levels in the industrial sector, coupled with a small fall in capital values during the same period. There will however be hot spots which buck the general trend and well located industrial estates in the Midlands region will continue to attract investor interest. However, the level of activity will be less determined by would be purchasers, more by the desire or need for current owners wish to sell
With the lack of the development, new prime stock is scarce in the market place. This coupled with the reluctance of investors to dispose of assets unless there is a pressing need has limited the supply of stock to the market. This scenario is likely to continue over the next 12 months.
One of the key attractions to investors, particularly in the multi-let locations is the ability to ‘manage’ the asset. At first glance you might expect purchasers to want estates which are ideally fully income producing with a strong tenant line up and all leases will be on medium to long term arrangements. That is not always the case. Prospective purchasers will continue to look for opportunities where there may be shorter term leases or even vacant units, which will enable them to manage the asset by renegotiating leases and filling vacant units and consequently increase the value of the property.
This approach is only appropriate where occupier demand is strong (or at least strong in comparison to supply of alternative stock) and detailed knowledge of the local occupier market will be as important as understanding the investment sector in making the right purchases.
Much has been written about the lack of finances in the commercial sector and nothing more needs to be said about that other than to predict the situation will probably not improve in the next 12 months. On a more positive note, industrial and warehouse occupier demand in the East Midlands appears to be holding up as 2013 begins, and the signs are that investment market for industrial stock should perform at least as well in 2013 as it did in 2012.