Ongoing industrial strength and selective retail recovery see highest all property return since mid-2018

Rolling quarterly All Property returns hit 2.14% in January, the highest since June 2018, according to the latest In Brief investment report from property consultancy Gerald Eve.

Alongside the ongoing strength of the industrial and logistics sector, the stabilisation and selective recovery of retail and logistics assets was an important factor in the improvement. Retail returned -0.11% and leisure -0.55% as the negative impacts of yield and rental growth continued to wane compared with the May 2020 trough.

Greater clarity over the future prospects for retail and leisure assets saw enhanced investor interest in the sectors late in 2020, a trend anticipated to continue as the pandemic outlook improves. Retail has now moved from widespread falls to selective asset recovery, and retail warehouses had a third month of positive quarterly total return in January.

Office returns were essentially zero for the third consecutive month at -0.01%, while industrial remained the best-performing asset class by a distance, albeit with rolling quarterly returns dipping slightly to 6.04% from December’s peak of 6.5%.

Continued progress with the UK’s vaccination programme is seeing economic confidence improve, with GDP forecast to increase by 5.5% in 2021. Gerald Eve forecasts All Property returns of 6% in 2021 and 7.2% in 2022.

John Rodgers, partner and head of UK capital markets at Gerald Eve, said: “As the retail and leisure picture has become clearer we have seen selective investor interest return to the market. The income component in many cases has stabilised, there is greater visibility over which assets have a future in their current form and which hold potential for repurposing. This is most noticeable with retail warehousing, where assets are more suited to the logistics-based retail of the future and the ability to efficiently operate collections and returns.

“But while the selective improvement in retail and leisure has reduced their negative impact, it is the ongoing strength of the industrial and logistics sector that has driven rolling quarterly All Property return to its highest level for 18 months. The shifting dynamics that have underpinned this growth continue to make themselves felt, and these fundamentals remain a key part of the investment story of our forecast for All Property annual return to hit 6% at end-2021.”