Market Update – October 2016
Of the three main real estate sectors – retail, offices and industrial – the third of these has always been the smallest and the most neglected by investors, particularly foreign investors. Over the last twenty years or so, the sector has morphed from being dominated by small light industrial units to being characterised by medium/large logistics units. During that period, the yield gap between it and the other two main sectors has gradually narrowed, losing one of its main advantages, income generation. But the last couple of years have seen the sector produce some significant outperformance, the result of limited new logistics supply and growing demand to meet internet sales. Reflecting that, even the more secondary space is now being taken up by occupiers who, if necessary, adapt it to their specific requirements.
The latest MSCI IPD monthly figures confirm that, even in a falling market, the sector continues to outperform: for August, capital values returned -0.8% in retail, -0.9% in offices and -0.3% in industrial, while the July figures were, respectively, -2.8%, -3.6% and -1.9%. With the gradual shift of retail sales online, it might be argued that logistics units are becoming the new retail units, responding to total retail sales (not just bricks-and-mortar) which are continuing to boom in the UK.