Industrial land values in the UK shrank by 47.4% in the second half of last year, according to new data from Colliers.
The average land value fell to £1.5m an acre in December 2022 from £2.86m in June, due to inflation and increased borrowing costs, which caused a market slowdown.
Andrea Ferranti, head of Industrial research at Colliers, said: “We’ve seen a significant shift in land values over the last six months or so, caused by a cacophony of issues coming together at once: strong inflation, rising interest rates and the consequent slowing economic activity. While it was generally accepted that the market was due a correction, the speed at which this occurred was widely unexpected. We suggest that values are about to bottom out, and providing we see strong signs of inflationary pressures abating this year, borrowing costs will ease.”
Prime industrial rents grew in the second half of last year, but the rate of growth slowed compared with 2021. The average prime headline rent for large distribution warehouses of 100,000 sq ft and over in the UK rose by 3.4% in the six-months to 31 December 2022 and 10.5% (year-on-year) to £10.2/sq ft. Smaller and multi-let units across the UK enjoyed growth of 5% (£13.7/sq ft) – a 13.2% year-on-year increase.
Len Rosso, head of industrial and logistics at Colliers, said: “There’s been continued solid rental growth for the sector over the last six months despite the disturbances to the country’s economics. Demand has continued for space and with availability still fairly tight, rental growth is not forecasted to turn negative.
“The challenge for the markets is going to be around the supply issue, as only a small pool of investors are going to have the capacity to speculatively forward fund or develop new supply under the current conditions. The cash-rich, long-term investors however can strike now while the values are down, taking advantage of a less crowded market.”
