Transaction volumes declined during lockdown, with investment into distribution most favoured.
Low availability of quality assets, uncertainty and hurdles to doing business led to UK industrial & distribution (I&D) investment activity falling by 52% during Q2 2020 to £671m. This compares favourably to investment into offices and retail which fell 78-79% compared to the 5-year quarterly average. £553m was invested into distribution and another £118m into industrial assets across the UK. London distribution saw a positive bounce at £194m invested in Q2, much above the 5-year quarterly average.
Quoted property companies are the dominant investor group
Purchases by UK-based investors SEGRO, AVIVA and Pacific Investments dominated acquisitions in Q2. Overseas investors made up 19% of I&D investment in the second quarter—third largest after UK institutions (24.6%) and quoted property companies (34.5%). Going forward, we expect the market to remain crowded with a high weight of money looking to invest after an initial hiatus and investors competing for the best assets. What is seen as the ‘best’ might change going forward, with a focus on which occupiers pay rent on time and whether they have a sustainable business model.
Forecasts for performance are now harder than ever
Forecasting is difficult at the best of times. In the current market, with income hit in a way the property industry has not seen before, it is even harder. If economic output continues to recover from the COVID-19 recession and a vaccine can be supplied in 2021 there is likely to be a meaningful uptick in I&D total returns in 2021. In a worse-case scenario, with no trade deal between the UK and EU by the end of the year, and if social distancing is required throughout 2021, the economic recovery will lose pace and I&D total returns could decline more severely.