Why Covid-19 is unlikely to have a long-term impact on industrial investment
As the country enters the fourth week of Covid-19 lockdown, the majority of the industrial investment market remains on pause. Transactions that were under offer prior to the crisis are mostly on hold while buyers and sellers try to assess what the future is going to bring, and also which tenants are able to continue paying rent.
Many institutional investors and funds have sent purchase decisions back to Investment Committee to review and stress test assumptions. On other sales, the practical problem of not being able to undertake inspections has intervened to delay matters. Only a very limited number of buyers have unilaterally pulled out of purchases altogether.
Many sales that were due to be launched over the past few weeks have gone on hold until investor inspections and surveys can take place uninhibited and valuers can support price levels without qualification.
While it would be wrong to describe the investment market as anything but challenging, there have been a number of deals that have exchanged and completed since lockdown began, as well as a series of competitive bidding processes on sales that were already quite advanced.
Savills has recorded a total of around £260 million of completed industrial sales since 16 March (excluding those that exchanged before that date, but completed afterwards) with an average Net Initial Yield of 5.5 per cent. Notably, these transactions span the full spectrum of the asset class including logistics, two secondary portfolios and multi-let estates both small and large.
With increasing challenges facing sectors such as retail, and now also previously popular alternative asset classes such as hotels and leisure, industrial and logistics looks set to remain a target for investors in the short and medium term. We’ve recorded around £2 billion of offers that have been made on industrial property during the lockdown period, demonstrating the significant weight of money continuing to be invested in the sector.
Parts of the industrial occupier base are expected to be beneficiaries of increased home delivery due to a shift in consumer shopping habits during these difficult times and reduced speculative development will help to offset an increase in vacancy arising from tenant default. Indeed some regions of the UK now have no big shed speculative development under construction whatsoever.
We all hope that the end of this public health emergency is not far away, obviously due to the much bigger concerns outside of the property investment market. However, if the end of lockdown comes within the next six to eight weeks, there are good indicators to suggest that the scale of any adverse impact on the industrial and logistics sector will be reasonably limited.
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