Page 7 - FOGlet 4

space to alternative uses is creating upward deployment of capex deliver an
pressure on rents, which in real terms institutionally acceptable product, with the
remain off a low base when compared to potential for yield compression. Lot size is
those being achieved in 1992. Industrial relatively low compared to other asset
remains the cheapest sector in real estate classes (often sub £5 million) and therefore
with rental levels having remained the opportunity also exists to create a yield
historically low in real terms over an premium through portfolio accumulation of
extended period. estates and selling into the institutional
With the increase in take up and market.
reduction in supply (with little new stock There is still value in the sector with
replacement emerging) rental growth in the pricing for under managed assets remaining
sector is expected to be close to three to at below replacement cost, despite the
five per cent a year over the next five years. supply and demand metrics supporting
The rental growth curve also reflects the sustained rental growth across the sector.
longer-term affordability compared to 20 There is no doubt that the case for investing
years ago and industrial still offers some of in the industrial sector is strong. Supply is
the cheapest space available. With rents at an historic low while there is rising
needing to be materially in excess of £8.50 demand from an increasingly sophisticated
per sq ft to justify development, limited and wider tenant base driving rents up. The
new stock is emerging and this trend is set sector should continue to prove attractive
to continue with the current low average for investors seeking to diversify risk
UK passing rent through multiple units and occupiers
offering longer-term rental growth prospects
An overlooked asset class
due to underlying increase in demand, a
The sub sectors of “Urban Logistics” and
reduction in stock and the evolution of
“Multi-let Industrial” remain an over looked
online retail.
asset class despite having a robust income
Barwood Capital is a big advocator of
through diversification of both unit type,
this sector which is already a significant
size and tenant mix. The pro-active asset
part of the 2017 Property Fund and will
management strategies that need to be
continue to be part of Barwood’s future
adopted can put off investors who don’t
investment strategy.
have the expertise or resources needed.
Hugh Elrington is a Board Director
Therefore, the opportunity exists to take an
and Head of Property of Barwood
under performing asset which would not
Capital, the UK real estate investment
appeal to institutional investors and
manager https://barwoodcapital.co.uk/
through active asset management and

Foglet 4th Edition www.gpfo.co.uk 5