■ Following record investment volumes in 2013 of £2.7bn into the logistics sector the market has remained buoyant with investment volumes reaching £4.2bn. The 54% increase in volumes has once again ensured a record year for the sector.
The 54% increase in investment volumes has once again ensured a record year for the logistics sector.
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■ Investor demand for logistics remains incredibly strong, with UK funds, REITs and overseas buyers all remaining active in the market. However, this strong demand and desire to deploy capital has stretched the definition of prime to varying degrees.
■ Whilst some new entrants to the market did have an impact on investment volumes the market was dominated by established players consolidating their position with just over a third of all transactions by value accounted for by just six companies: Tritax, Legal & General, LondonMetric, ProLogis, Blackstone and Segro.
■ Savills prime yields for distribution warehouses ended the year at 4.75%, a 100bps inward shift during the calendar year. As the availability of genuine prime has been relatively scarce, investors have substituted prime with more secondary assets.
■ This has resulted in strong yield compression and contributed to the high total returns expected for the year. Using the IPD monthly index we estimate Total Returns for logistics property to be 23.8% for the year, comparing favourably with the "All Property" sector which stands at 19.3%.
■ For 2015, we expect some downside geopolitical risk to the market. However, we expect funds to continue to flow into the UK markets with industrial remaining a desired sector due to it’s favourable characteristics (low obsolescence, land squeeze from higher value uses) and alignment with changing consumer retail habits.
■ Whilst there remains room for further yield compression we do not expect to see a further 100bps inward movement this year. Total returns will fall however, with rental growth emerging in key markets we forecast returns for the sector this year to be 12% - 15%.