London industrial multi-let records a total annual return of 20.5 percent!

 

According to Gerald Eve's latest newsletter in In Brief, London's multi-let industrial property returned over 20.5 percent in the twelve months to April2021, with UK distribution warehouses returning over 18 percent. villa

Total return on property continued to rally and reached 2.6% in April, the strongest since February 2018. The main driver was yield compression, with rents effectively stable at the level of All properties.

All property's total returns were sustained by industrial property, with "frenetic" investment activity driving an average yield of as low as 4.17 percent for multi-let London. Retail continued to make steady gains, with total rolling quarterly returns up to 1.1%. This performance headline masks the two-speed sector, with the total return on retail warehouses improving every month in April to 2.9% and shopping centers and high-street revenues remaining constant respectively at around -4% and -2.5%, respectively.

"The scale of total income from the industrial and logistics sector is largely due to the weight of capital targeting the asset class itself, supported by the continued strength of the occupational market. While ever-lowing industrial returns will eventually affect the sector's capital in stabilization across other property sectors, the investment story for the industry remains compelling."

Total quarterly returns for offices remained flat at around zero, although the sector also saw diverging performance. Office assets in London have stabilized with relatively longer incomes, while riskier incomes have fallen into negative territory. Strong investor enthusiasm for UK life sciences also continued significantly into Q2, with several major transactions.

With Central London offices taking 1,4 million square meters in the first quarter still less than half the five-year average – and business visits still silent, albeit upward – investors are still awaiting revealing themselves to the sector.

Guy Freeman, Gerald Eve partner, says: "With most office workers still working from a distance, investors and employees understandably are looking for more clarity before making major undertakings. The 'quality flight' remains, with investors targeting primary assets that offer both long-term revenues and strong future-proofing ESG credentials. When more people return to office – and the trend moves in the right direction – we can expect more leases to be signed and transactions to be made with increasing confidence."

In March, the oversupply of GDP and the upward revision of the GDP forecast for 2021 to 7.5% affected Gerald Eve's own forecast on property returns. The Company now forecasts a total return on all properties of 9.4% in 2021, which fell to 6.9% in 2022, supported by a constant strength in the industrial market, and by retail and leisure stabilization later in 2021.

"By far beyond the forecasts of six months ago, the economic rebound is showing that unemployment now seems to peak at a much lower level than expected before, with fairly wind-based GDP at pre-pandemic levels by the end of the year. This is obviously very positive for all real estate sectors, but will continue to conceal disparities between asset classes which can capitalize on the recovery and those that will take more time, more asset management and potentially redevelopment."