Investment market


Having borne the brunt of last year’s seismic shift in financial conditions, dust is already starting to settle in the industrial investment market. While occupier market risks have increased, ongoing rental growth prospects should restore industrial as the lead-performing UK sector over the coming years.

2023 has brought with it a palpable improvement in investor sentiment for UK industrials. With regard to quality, well-let distribution assets, the severe pricing correction of late 2022 has already run its course, aided by improving certainty over the direction of travel for interest rates.

Positively, pricing expectations between buyers and sellers are quickly moving into alignment, with notable examples of unsold stock from 2022 expected to transact during 2023. Greater certainty over pricing will pave the way for improving activity, with a modest quarter for volume in Q1 expected to be followed by a tangible improvement in Q2 and beyond.


The financial market chaos of last autumn brought the long, strong run of industrial & logistics volume to an abrupt end in the final quarter of 2022. At £1.6bn, Q4 volume slumped by 50% from Q3’s surprisingly strong outturn, the lowest since Q2 2020 and 33% below the five-year average.

Industrial Investment Volume

The sharp fall reflected both reduced pricing and a lack of large transactions, with Q4 seeing only one deal over £100m, far removed from the 13 seen earlier in the year in Q1 2022. Notably, unlike other property sectors, particularly retail and offices, there remained a reasonable depth to market activity in the final quarter. Q4 still managed to muster 100 deals, only around 25% down on the boom-time average spanning the previous two years.

Despite the sea-change in pricing and sentiment during 2022, the industrial and logistics sector still delivered a very impressive year overall. Bolstered by an impressive start to the year, £11.5bn worth of industrial & logistics assets changed hands in 2022 as a whole, 24% below 2021’s colossal high but nonetheless the second strongest year on record.

Distribution warehouses dominated volume in the sector throughout 2022, albeit to a lesser extent than recent years. At £7.1bn, distribution warehouse volume in 2022 was down 33% on 2021’s record and accounted for 62% of the annual total, its lowest share in three years.

Meanwhile, despite a greater perception of occupier market risks in the multi-let arena, taken together, South East and Rest of UK industrials fared slightly better than distribution warehouses in 2022 relative to 2021. Thanks to a very strong first half of the year, the two sub-sectors collectively saw volume of £4.4bn in 2022, only 6% below 2021’s total and the third strongest year on record.

Notably, indicative of a renewed emphasis on defensive attributes, the slump in Q4 bore a much closer resemblance to 2021’s breakdown of volume between the various sub-sectors. Distribution warehouses accounted for a substantial 77% of Q4 volume as activity in the multi-let arena dropped to £375m (inclusive of portfolios) for both of its sub-sectors combined, the lowest since Q3 2020.


Despite the severity of the market correction, overseas investors continued to drive volume in the sector, deploying £6.1bn in 2022, three quarters of which went into distribution warehouses. While this was the second strongest year on record for overseas buying, it was 25% down on 2021’s peak. In typical fashion, overseas buyers dominated at the larger end of the market, behind eight of 2022’s ten largest deals.

Understandably, Q4’s sharp drop-off in volume reflected a commensurate fall of overseas inflows during the quarter. Despite being boosted by ICG’s substantial £220m acquisition of the Morrisons Portfolio, overseas inflows of £845m in Q4 was the lowest in nine quarters and 25% below the five-year quarterly average.

The origin profile of overseas buyers was more diverse in 2022 than previous years. North America was slightly less dominant than previously, with buying of £3.2bn down 48% on 2021, while inflows from Europe and the Far East hit record levels in 2022, with volume of £524m and £714m respectively. That said, Far Eastern volume was dominated by the largest industrial deal of the year, namely GIC Real Estate’s £425m (4.50% NIY) acquisition of the UK Land Estates portfolio (Project George) from Northwood Investors.

Domestic buyers were generally less acquisitive than overseas buyers in 2022 relative to trend. Across all domestic buyer-types combined, volume of £5.4bn in 2022 was 24% down on 2021 and 1% above the five-year average. Record pricing during the first half of the year and strong overseas appetite provided a tempting opportunity to crystallise substantial gains in some cases. As a result, domestic investors were net sellers to the tune of £4.5bn in 2022.

However, activity among the domestic buyer types varied significantly. Quoted propcos were the only net buyers of industrial & logistics in 2022, at £886m for the year. Urban Logistics REIT Plc was the most active quoted propco, behind 14 of the year’s 58 purchases made by REITs. However, REITs activity slowed markedly in H2 as the market changed, culminating in only £22m worth of purchases across three deals in Q4.

UK institutions were net sellers of industrials for a third consecutive year in 2022. Record annual disposals of £3.7bn gave rise to substantial net selling of £1.9bn, most of which was focused in the second half of the year as the funds scrambled for liquidity. CBRE Investment Management was the most active institutional seller in 2022, disposing of 20 assets, while Abrdn sold the most from a volume perspective, disposing of more than £600m across nine assets.

Despite the wider trend to sell, several institutional buyers did capitalise on significant repricing in the market to secure quality assets in Q4. Notable examples included Aviva’s purchases of a unit at Omega Park, Warrington (£88.63m / 4.45%) and a Brake Brothers unit in Reading (£46.50m / 4.68%); and CBRE Capital Advisors’ purchases of Unit 1 Symmetry Park, Swindon (£31.185m / 4.95%) and Hams Hall 145, Birmingham (£22m / £4.50%).


Having been the standout performer of the wider UK property market for five successive years, industrial & logistics experienced a major reality check in 2022. With yields at record low levels, the sector bore the brunt of rising inflation and the complete unravelling of financial market conditions in the second half of the year.

In the space of six months, notional yields across the market softened by 150-175bps from the all-time lows seen earlier in 2022. Yields for long indexed-leased distribution warehouses softened by 150bps in H2 2022 to circa 4.75%, while yields for prime South East multi-let estates softened by 175bps to circa 5.25%. The dramatic shift in pricing was also clear to see in the market, with the average industrial transaction yield shifting up by 131bps in Q4 alone to a two-year high of 5.04%.

Pricing Q4

The substantial price correction weighed very heavily on returns, with industrial ending 2022 as the worst performing UK property sector. According to MSCI’s quarterly index, UK industrial returns hit a record quarterly low of -18.4% in Q4 2022. All of the sector’s performance from earlier in the year was erased at a stroke, dragging annual returns for 2022 down to -14.6%, the weakest outturn since the 2008 global financial crisis.

While the severe correction was evident across the industrial landscape, there was some degree of variation between sub-sectors. Distribution warehouses saw the weakest performance on the MSCI measure, with returns of -16.2% during the 12 months to the end of 2022, while Rest of UK Industrials was the least badly impacted, with total returns at -11.1%.

Annual Total Return

Positively, evidence increasingly suggests that most of the correction has already taken place, certainly with regard to prime, well-let assets. Independent forecasts suggest industrial will regain its status as the UK’s top performing core asset class over the medium term, albeit not to the extreme levels of the recent past.

Latest forecasts from RealFor predict average annual UK industrial returns of 6.9% per annum over the period from 2023 to 2027, marginally ahead of All Property returns of 6.1% per annum. Sector returns are expected to be led once again by London estates, with forecast average returns of 8.2% per annum. Industrial’s relatively modest level of projected outperformance, certainly compared with the recent past, is largely fuelled by expectations of continuing rental growth, with rents projected to grow by 2.6% per annum up to 2027, compared with 1.1% for All UK Property.

Forecast Components of Return

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