Industrial market update Autumn 2024

Supply issues.

In short: Logistics and standard industrial continue to outperform compared to the rest of the commercial property market, although performance and investment levels have eased over the last 12-18 months.

Vacancy rates across all industrial at a near 10-year high of 4.7%, but this has been pushed up by the higher vacancy rate in logistics, at 5.6%, compared to 2.8% for specialised industrial and light industrial.

The vacancy rate has been pushed up by higher supply as well as a slowdown in demand, a trend which will continue into next year, but even so, compared to other sectors, the vacancy rate is relatively muted.

The continued popularity of e-commerce and the requirements for net zero along supply is underpinning this market, which is now running back in line with pre-pandemic trends.

Demand for buildings completed to a high specification, and especially those new or redeveloped schemes that meet BREEAM Very Good or Excellent, will be supported by companies setting their own targets and pledges about energy efficiency – for example, DHL has said it will achieve 100% net-zero carbon warehousing by 2025

Across the UK, rental growth continued to slow, and averaged 6.8% in the year to the end of June 2024 for standard industrial and 5.1% for distribution warehouses, according to MSCI. CoStar’s data also shows a slowdown in rental growth but puts logistics rental growth at 6.1% in August 2024.

Rents are being pushed downwards by rising operational costs, including rising service charges, energy costs and business rates.

This trend was bucked in London however, with average rental growth for standard industrial in London ticking up to 8.6% in June, pushed higher by smaller units in sought-after locations in well-connected markets in north and west London, such as Ealing, where demand continues to outstrip supply.

In Manchester, the vacancy rate continues to rise, climbing to 4.1% at the end of H1. It will continue to climb as there are high levels of construction. While activity slowed in H1 compared to a busier market in 2022 and 2023, the fundamentals in the Manchester market including transport networks, a growing population and proximity to other major cities and Humberside port, make it a key logistics and distribution hub.

Investment activity has slowed at a headline level – Industrial sales totalled £6.7 billion the year to August, less than half the £19.3 billion in investment in the year to March 2022.

The appeal of the sector, and the weight of capital seeking assets, is underlined by a large purchase by Prologis on Western Avenue, Park Avenue in London.

However, there are some bright spots for activity in Midlands and the North West, although the highest price premium for a deal in Manchester is linked to the site’s potential for alternative use.

Across the UK, pricing has stabilised, with industrial equivalent yields sitting at around 6% – 6.5% across the UK, compared to 4.5% in early 2022. Our yield sheet is showing industrial yields remaining stable.

Total returns for industrial were at 5.6% at the end of H1, up from -24% in June.

Industrial: Key investment transactions

Property Address	Town /City	Date	Building size (sqft)	Yield NIY(%)	Sale Price (£m)	Buyer
Deltic Trade Park	Milton Keynes	Q3 2024	47,913	5.15%	£10.5m	DTZ IM
Riverside Cargo Centre	Poyle	Q3 2024	43,044	5.36%	£14.4m	Lothian Pension Fund
Units A,C,D Kingsway Business Park	Rochdale	Q3 2024	166,152	5.25%	£21.8m	NFU
Insignia Park	Dunstable	Q3 2024	139,820	4.75%	£38.4m	NFU
Stone Close/ Horton Road	West Drayton	Q3 2024	149,737	4.01%	£44.8m	Weybourne Investments
Western Avenue	Park Royal, London	Q3 2024	288,523	4.0%	c. £125m	Prologis
Follingsby Park	Gateshead	Q3 2024	1,000,527	5.15%	£111.4m	Westbrook

Key statistics:

Industrial Q2 2024 unless otherwise stated	UK	London & South East
Distribution, multi-let estates and specialised industrial	Current quarter (last quarter / 5yr ave)	Current quarter (last quarter / 5yr ave)
Occupier
Availability rate %	5.5% (5.1%/5.5%)	6.3% (5.6%/5.7%)
Vacancy rate %	4.4% (4.2%/3.3%)	4.8% (4.4%/3.3%)
Rental growth % annual	5% (6.8%/6.7%)	4.9% (5.5%/7.0%)
Quarterly take up sqft	10.1m sqft (12.4m/20.9m)	1.8m sqft (3.2m/4.6m)
Supply
Completions (net delivered) sqft	6.8m sqft (7.5m/10.2m)	1.8m sqft (1.5m/1.7m)
Total under construction sqft	44.8m sqft (49.8m/57.0m)	12.8m sqft (13.8m/11.1m)
Investment
Quarterly sales volume £	£2,018m (£1,770/£2,702m)	£1,69m (£455m/£997m)
Prime Distribution sheds yield	5.25%-5.5% (5.25%-5.5%)
Secondary Distribution sheds yield	6.00% (6.00%)
Prime Industrial yield	5.25%-5.75% (5.5%-6.00%) Regional	4.75%-5.00% (4.75%-5.00%) Within M25
Secondary Industrial Estate yield	6.50%-7.25% (6.50%-7.25%)

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