UK prime yields hardened by 2bps in February following three consecutive months of no movement according to research from Savills. The average yield reached 4.50% in the second month of the year, just 19bps from the previous peak for 4.31% in March 2007.
In its recent Market in Minutes report the international real estate advisors said yields on logistics properties now stand at 4.25%, the lowest level ever recorded. This follows a record year for investment into the industrial sector with £11 billion invested in 2017. This represented 17% of all investments into UK commercial real estate, the high proportion of the market ever recorded. There is increased downward pressure on the multi-let industrial sector and M25 offices, with the firm expecting the average prime yield to see continued downward pressure.
Savills notes UK institutions have increased their presence in the market, accounting for £10.5 billion of transactions in 2017, up from £8.2 billion in 2016 and higher than the long term average of £10 billion.
Richard Merryweather, joint head of UK investment at Savills, comments: “The range of investors looking at the UK market is as wide as we have seen, and despite uncertainties around the ongoing Brexit negotiations, the UK is being seen as a relatively stable market in which to invest.”
Kevin Mofid, director in Savills commercial research team, adds: “The logistics sector has had a spectacular couple of years with investment volumes into the sector reaching a record £11 billion in 2017. Compared to the USA the UK has significantly less warehousing on a per head basis and record low levels of warehouse vacancy. This lack of supply, alongside a strong occupational story has seen investors look to the sector looking for a positive rental story.”
