Industrial land values recovery begins in prime areas, Colliers latest rents map reveals

Len Rosso, head of industrial & logistics at Colliers International

UK industrial land values have risen to an average of £1.8m an acre, up from £1.5m an acre at the beginning of Q1 2023, highlighting the start of a recovery says Colliers.

Publishing its latest Industrial Rents Map the commercial real estate firm has identified that some prime areas such as the Golden Triangle in the Midlands; some core south-east markets; and most London submarkets have seen the beginnings of a resurgence in land values despite yields having not compressed as yet this year.

Colliers’ latest rents map shows that the UK average prime headline rent for large distribution warehouses (100,000 sq ft+) rose by 6.6% (six-monthly growth) and 10.1% (year-on-year) to £10.9 per sq ft in Q3 2023. For smaller units and in the multi-let sector rents grew by 4.1% since the firm last updated their map (and 9.3% y/y) reaching £14.2 per sq ft.

Len Rosso, Head of Industrial & Logistics at Colliers said: “At the beginning of the year market sentiment was very negative – there were predictions of one of the longest recessions on record, and that higher borrowing costs would result in a significant number of forced sales – but ultimately that’s not materialised and we’re seeing resilience with some investors, particularly those that are cash-rich, focused on the medium to long term.

“At the same time landowners are holding out for a price that they think reflects their asset’s medium-term value, rather than having knee-jerk reaction to current market dynamics. While occupier demand has come down from the pandemic peak, it is still there, particularly for those who have a need to move due to lease events or contract-led requirements.”

A reduced level of activity over the last 15 months has made it difficult to fully analyse the market. Having said that, Colliers estimate values remain 36.9% down on the market peak of Q2 2022. London and the South East have been most affected by the outward yield movement due to their higher land values. The average value in London is now at £4.95m an acre compared to £3.78m in the previous study, while across the South East it has moved to £1.64m from £1.46m. Prime headline rents for multi-let and mid-box assets in London rose by 2.1% during the six-month period to the beginning of Q3, to an average of £25.4 per sq ft, a 9.2% average growth year on year.

Andrea Ferranti, Head of Industrial Research at Colliers added: “Despite the difficult economic conditions, uncertainty over exit yields and elevated debt cost environment, land values in core markets have increased due to the resilient occupier demand, robust rental growth, strong investor appetite for value-add investments and an acute lack of development land, particularly in London. We remain cautiously optimistic there will be sustained rental growth and investors will look to position themselves on the right side of the real estate cycle as soon as there is confidence in the normalisation of monetary policy.”