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Resilience through adversity

Jamie Thain on the enduring popularity of the industrial market.

As an investment prospect industrial property has been increasingly in vogue over recent years and that trend looks set  to continue. 

At the start of lockdown towards the end of March we had to close our offices and start working from home. This caused an immediate problem in progressing property transactions. While the legal process could continue it was not possible to travel to, inspect or survey buildings where that had not already happened as part of a transaction.

Eventually things eased enough to enable carefully planned and socially distanced inspections and surveys to take place, even though at the same time schools, offices, restaurants, bars, shops, coffee shops etc. were still all closed. So, at the end of May when I carried out my first inspection since the beginning of the year, this happened to be an industrial property within a large Central Belt industrial area. 

It immediately struck me that while things in the rest of the country were still very different, this environment looked and felt like it always has – possibly with the exception of a few businesses which remained closed. The streets were lined with cars, the flow of lorries and vans was quite heavy and there was a great deal of activity.

Of course, this shouldn’t really have been a surprise given what has been well documented in relation to the rise of last mile delivery and support for essential services continuing throughout lockdown, however, having spent the previous two months in an eerily quiet city it seemed very different, in an entirely positive way. 

Prior to lockdown the industrial market throughout the UK was very strong both on the occupier side and as an attractive investment option. The sector was already benefiting greatly from such market forces as the rise in e-commerce, which this year reached a record high in May, accounting for 32.8% of all UK retail sales.

Both Edinburgh and Glasgow’s core (city and immediate surrounds) industrial markets are currently exhibiting very low supply at 3.7% and 2.8% respectively with supply in the wider Central Scotland industrial market currently at 5.9% and trending downwards. Coupled with a lack of new development and steady demand these market characteristics have led to strong rental growth over recent years.

During lockdown a number of new letting transactions stalled or slowed for obvious reasons, but since the easing of restrictions has allowed more freedom of movement, many of these have now taken place. Some have achieved new rental high points, especially in the Edinburgh and Glasgow core markets. While this is positive it will inevitably result in further pressure on supply when coupled with a fairly thin pipeline of new developments underway across Central Scotland. 

There has been a flurry of industrial investment transactions in Scotland since lockdown eased, which serves to underline the popularity of the sector amongst investors. Significant transactions include the sale of Amazon's Dunfermline fulfilment centre to KB Securities for around £66.8 million, representing a yield of around 4.8%. The 1 million sq ft distribution warehouse, which is let to the retailer for a further 12 years, last traded in 2017 for £54 million / 5.3%. 

Sainsbury’s distribution centre at Langlands Park, East Kilbride has also been sold by Orchard Street Investment Management to Blackbrook Capital Europe for £30million, which represents a yield of around 4.9%. The 274,000 sq ft regional distribution centre is let to the retailer for a further 14.5 years. 

In addition, a number of multi-let estates have sold, including St Andrews Industrial Estate and Excelsior Industrial Estate in  Glasgow for £5.5million / 7.34%  and £5.2million / 6.30% respectively.  Both were purchased by industrial specialist Stenprop and, in Edinburgh, Prestonfield Park, one of the City’s prime inner-city estates, has been sold to Ribston UK Industrial PUT for £14.45million, which represents a yield of around 4.96%. 

Although the sector is not immune  to economic deterioration or a fall in consumer confidence, it has proved itself resilient and in some cases critical over the last few months and we expect this to continue.   

As an investment industrial property in all its forms, whether it be large scale logistics warehousing, last mile distribution hubs, multi-let estates or more focused trade clusters, provides an interesting option for investors going forward. In a world where many sectors are really struggling just now this is great to see.