Investment in London’s industrial market slumps to decade low as online sales fades
Investment into London’s industrial market has slumped to a decade low as demand for warehouse and logistics sites faded after the pandemic boom.
Just over £100m was spent on greater London industrial investment last quarter, down 62 per cent on the same quarter a year ago, figures by CoStar shared exclusively with City A.M reveal.
The last major transaction in Greater London occurred last year when Valor Real Estate acquired Tera 40 in Greenford for £146m.
CoStar said the price-per-square-foot of £301 on this deal was “less than half the record £709 the same investor paid to acquire two units on nearby Willen Field Road for £38m a year earlier”.
The pandemic saw shopping habits move predominantly online in response to social distancing laws, leading retailers to increase their warehouse space to manage orders and ship out more stock.
However, high inflation and a squeeze on living costs has led many customers to scale back on spending.
Other challenges such as high labour and material costs have also slowed down development numbers.
Mark Stansfield, senior director of UK Analytics at CoStar, said: “The past two quarters have been the weakest since 2014, the period before the e-commerce-inspired sugar rush that made industrial properties the darling of real estate investors at the expense of those in the retail sector.
“London has suffered disproportionately from price declines since the Bank of England began rising interest rates to combat runaway inflation two years ago.”
He added: “While some market participants report prime industrial yields rising by about 100 basis points during this period, average yields in the capital have risen by 200 basis points, far higher than the 150-basis-point outward yield shift recorded across the UK.”
Stansfield said: “Yields are now stabilising and hopes of interest rate cuts and better economic conditions on the near-term horizon, could lead activity to pick up in London in the coming months.”