The firm has analysed activity and demand in the sector over the past quarter and reports that mid-sized opportunities exist for company pension funds, REITs, property companies and private investors with larger portfolios.
Jamie Thain, a partner with Galbraith, said:
In the past 18 months we have seen institutional funds focus on 10m plus assets, while most private investor interest thins out above 2m. This creates opportunity in the 3m to 8m lot size range.
Quality single-let assets are likely to be let to strong national covenants and generally be in good locations. A lack of new development in recent years has created a shortage of such units, so rental growth over the short-term is a real feature now as tenant demand increases. Multi-let industrial assets have different dynamics but a well-considered business plan, which may include capital expenditure, is also likely to generate solid rental growth for the same reasons.
Current yield ranges for Scottish industrial investments are:
- 15-year single let income: 5.00% to 5.75%
- Quality single let assets providing 5 to 10 years income: 6.00% to 7.00%
- The best multi-let estates close to city centres: 5.75% to 6.50%
- Older multi-let estates: 7.00% to 10.00%
The Galbraith market sector analysis also concluded that larger industrial assets (100,000 sq ft plus) such as distribution and logistics properties in strategic locations continue to be let on long leases (15 years plus) to national or international tenants with strong covenants. Investment lot sizes for these are generally 10m-plus, with long-term income on offer and as such these properties attract institutional investors seeking sector diversification. Pricing for such assets has increased due to robust demand in recent quarters and yields are currently compressed into the 4.25% to 6.00% range.
Jamie Thain continued:
Strong demand exists for assets which are attractive to the logistics real estate sector, from large regional distribution hubs to more local last mile delivery' facilities. This is fuelled by significant recent occupier activity across the country, which in a large part is driven by the continued increase in online shopping. For instance, in the past 18 months Amazon has leased more than 8m sq ft over the UK alone. Parcel delivery occupiers such as DPD continue to recycle their UK distribution depot network, leasing new-build 40,000 to 80,000 sq ft premises across the UK. These units have often been leased for 20 years and have attracted yields of between 5.00% and 5.25% in Scotland, and lower south of the border.
The Galbraith investment team are some of the most active agents in the Scottish industrial property sector, having advised on more than 1.5m sq ft of industrial deals in the past three years.