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Property returns driven by the industrial sector
The surprise rebound in property market total returns in the second half of 2017 saw the All Property figure reach 11.2% at the end of the year, after bottoming out at 2.6% at the end of 2016.
The main impetus behind the strong recovery has been the industrial sector, where total returns ended the year at 21.1%, compared to 8.5% for the office sector and 7.7% for retail.
The strong performance in the industrial market over 2017 was driven by both the increase in rental values (4.9%) and the continued hardening of yields, which resulted in capital value growth of 14.7% for the year.
The latest IPF Consensus forecast anticipates All Property returns falling to 4.0% in 2018, with industrial property continuing as the lead sector (7.8%).
Investment activity remains buoyant
Investment market activity has remained resilient over 2017, with CoStar indicating total transactions of £62.1bn, 27% higher than the previous year.
UK investors have continued to be attracted to the industrial sector and some of the larger transactions along the ‘knowledge corridor’ have involved domestic investors.
The largest industrial transactions by a UK investor in Bidwells’ region was the £48.8m purchase of the 272,000 sq ft Royal Mail unit DIRFT Logistics Park, Daventry by Tritax REIT, whilst M&G Real Estate speculatively funded a new development at Buckingway Business Park, Cambridge for £23m.
Overseas investors have also featured as purchasers of distribution investments in Bidwells’ region, with the largest transaction being the £86.4m purchase of the 737,000 sq ft Debenhams distribution facility at Kingston Park, Peterborough by the Gulf Co-operation Council.
Industrial take up in 2017 hits a nine year high
Take up in Bidwells main industrial markets along the ‘knowledge corridor’ was 4.4m sq ft in 2017, the highest level of activity recorded since 2008.
Activity was boosted by several larger transactions in the second half of the year, the largest being the 750,000 sq ft pre let to retailer H&M at Altitude on Gazeley’s Magna Park, Milton Keynes. Other major retailers on the park include John Lewis, Waitrose and River Island.