UK industrial land values are showing signs of recovery, according to Colliers’ latest Industrial Rents Map.
Values have risen to an average £1.8m an acre, up from £1.5m an acre at the beginning of Q1 2023, with some prime areas such as the ‘Golden Triangle’, some core South East markets and most London submarkets witnessing the beginnings of a resurgence in land values despite yields having not compressed as yet this year.
The UK average prime headline rent for large distribution warehouses (100,000 sq ft+) rose by 6.6% (six-monthly growth) and 10.1% (year-on-year) to £10.9/sq ft in Q3 2023. Rents for smaller units grew by 4.1% (six-monthly) and 9.3% year-on-year reaching £14.2/sq ft.
Len Rosso, head of industrial and logistics at Colliers, said: “At the beginning of the year market sentiment was very negative – there were predictions of one of the longest recessions on record, and that higher borrowing costs would result in a significant number of forced sales – but ultimately that’s not materialised and we’re seeing resilience with some investors, particularly those that are cash-rich, focused on the medium to long term.
“At the same time landowners are holding out for a price that they think reflects their asset’s medium-term value, rather than having knee-jerk reaction to current market dynamics. While occupier demand has come down from the pandemic peak, it is still there, particularly for those who have a need to move due to lease events or contract-led requirements.”
Andrea Ferranti, head of industrial research at Colliers, added: “Despite the difficult economic conditions, uncertainty over exit yields and elevated debt cost environment, land values in core markets have increased due to the resilient occupier demand, robust rental growth, strong investor appetite for value-add investments and an acute lack of development land, particularly in London. We remain cautiously optimistic there will be sustained rental growth and investors will look to position themselves on the right side of the real estate cycle as soon as there is confidence in the normalisation of monetary policy.”
