Is the Midlands industrial market peaking?

InfraRed Capital Partners' sale of a 4.5M SF portfolio of U.K. light industrial assets in the Midlands and North West to Blackstone and M7 Real Estate for £320M suggests the sector is in rude health.

The 40-unit Powerhouse Portfolio is along the M6 corridor, and had been pieced together since 2014.

However, early warnings from the U.S. industrial sector suggest the market could be peaking. Demand is catching up with supply, and there are growing fears about frothy pricing and labour shortages in some markets, according to commentators in New York. Meanwhile, construction costs are rising fast, as are consumer expectations causing potential sustainability problems for some third party logistics firms and retailers.

"None of that really rings my bells," KWB Industrial Agency Director Kenny Allan said. "Enquiry levels haven't slowed, and what holds back take-up is not lack of confidence but lack of supply of new industrial units."

International investors such as Blackstone, in the midst of a £1.7B European fund raising, are still enthusiastic about logistics property.

"Yields are a different story," Allan said. "We've seen a convergence of yields of all property sectors in the last few years, and I can't see Midlands industrial yields softening. So long as people can borrow at 1% to buy at a yield of 4-5% we're going to see competition, and that will keep yields where they are."

InfraRed said the sale showed the sector’s strength and continued appeal.

“The U.K. industrial market remains highly sought after by investors seeking defensive income underpinned by a shortage of available space plus the ongoing expansion of e-commerce and last mile delivery," InfraRed Real Estate Director James Cooper said. "This sector remains a core part of our pan-European investment strategy.”

InfraRed were advised by Dowley Turner Real Estate, Osborne Clarke and Taylor Wessing.