Last year was a strong one for industrial land values. While they have been on an upward trajectory for some time, in the past six months we have seen a considerable surge, with values matching – and in some cases exceeding – residential figures, as well as other commercial sectors.
Although this has been seen nationwide, it has been most apparent within the M25. In some instances, values have doubled during the pandemic, with notable examples of sites planned for residential use being snapped up by industrial developers. This was seen most recently in Greenwich when a £300m residential development was secured off-market by global investor Patrizia and partner KSP in order to bolster its urban logistics strategy.
Other sites with existing residential planning consent are now being reviewed in light of their higher value as industrial land. This reversal of fortunes is likely to result in fewer homes being built in areas where there is a significant shortfall of new supply against housing need.
If this trend continues, we may see a review of planning policy to encourage and enable more housing delivery.
As a result of this fierce competition for urban sites, the balance of power has shifted towards the industrial sector. The shortage of good-quality units, coupled with significant demand, has resulted in huge rental growth that is only expected to continue. In fact, as a result of low vacancy in some areas around London, rents now exceed £30/sq ft in prime locations. This, together with strong investor appetite for the asset class, plus the sharpening of yields, has given the industrial sector the purchasing power to outbid the competition.
Looking ahead, major land acquisitions should help to encourage much-needed development within the M25.
All things considered, this points towards 2022 being another excellent year for the industrial and logistics sector.
Natasha Ryan is associate director in the industrial and logistics team at Savills
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