FOTBW_PPT_Feb_2023

Total Return -4.6% One Month

Income Return 0.4% One Month

Yield Impact -5.5% One Month

Rental Value Change 0.5% One Month

LOGISTICS & INDUSTRIAL FLY ON THE BROKERS' WALL

-14.9% One Year

-24.9% One Year

10.3% One Year

3.8% One Year

Source: MSCI UK Monthly Property Index, December 2022

VIEW ON THE GROUND

DEAL WATCH

PRICING Initial yields (%)

2022 proved to be a tumultuous year for the sector - building on a record 2021, Q1 2022 observed the highest quarter of investment activity on record, and through the first 4-5 months new benchmarks were reached across a range of product. The result of such interest in the sector saw yields reach 3.2% at the end of Q1 before decompressing by 15bps during Q2 to 3.35%. During the second half of the year previously strong sentiment began to give way to mixed market views, caused by a combination of declines in e-commerce levels and falling share prices of some retailers, 3PLs and logistics focused REITS. This was bolstered by wider economic uncertainty, which began to induce deal friction and deferred spending. The market has been quick to react to such structural shifts and despite some apprehension during H2 the market has seen a degree of stability return as a result of wide-spread repricing. With the cost of debt structurally increasing, and instability still lingering within the bond markets, the sector has moved quickly to ensure buyer and vendor aspirations are aligned. Prime logistics yields moved out approx. 150bps from Jan to Dec '22, with the vast majority of this decompression taking place during Q4. Evidence suggests yields have now plateaued, and in fact there are some suggestions that prime yields could move in. Recent key transactions include Smyths Toys in Corby which has completed to Leftfield at 4.55%. This offered 8 year income but with a highly reversionary passing rent with an open market review in 3 years time. Additionally, 14 years of income let to Brakes in Reading has been acquired by Aviva at 4.69%, although there is an outstanding review taking the reversion to approximately 5.5% immediately. There is now a relative positivity returning to the sector. Whilst values have fallen sharply, the UK market has benefitted from a faster reset than some European peers and there are a wide range of buyers seeking a return to the market including UK and European funds. Whilst supply of stock remains constrained, volumes are expected to normalise this year, albeit with a larger gap between prime and secondary pricing than has been seen in recent years. .

Smyths Toys, Corby Price: £30.50m Yield: 4.55%

Feb 2023 Oct 2022

Outlook

Multi-let prime Greater London

4.50% 3.85%

Stable

Multi-let South East

4.75% 4.00%

Stable

Status: Sold Comments: 8.3 years unexpired with highly reversionary rent – headline reversionary yield of c.5.75%. Acquired by Leftfield.

Multi-let Regional

5.25% 4.35%

Stable

Distribution prime long income

4.75% 4.00%

Stable

Distribution prime medium income

5.50% 4.50%

Stable

Distribution prime short income

6.00% 5.00%

Stable

Brakes Bros., Reading Price: £46.50m Yield: 4.69%

Status: Sold Comments: 14.3 years unexpired with an outstanding review providing immediate reversion to c.5.50%. Acquired by Aviva.

Junction 6 IE - Birmingham Price: c. £58m Yield: sub 4.50%

Source: Cushman & Wakefield

Quarterly investment volume (£m)

Status: Under offer Comments: Fully let multi-let estate 2.7years to breaks, highly reversionary yield of c. 6.50%

£8,000

£6,000

Thames Gateway Park - Dagenham Price: £99.45m Yield: 4% Status: Sold Comments: Reversionary yield of c. 5.6% with 5 lease events before the end of 2023. Acquired by Boreal.

£4,000

£2,000

£0

2010

2015

2020

Source: Real Capital Analytics

Source: Cushman & Wakefield

Source: Cushman & Wakefield