Could the market have seriously overcorrected industrial property values?

After a slow first half of 2023 and value-destroying second half of 2022, Cushman & Wakefield released data that points to strong long-term prospects.

The research comes weeks after the Investment Property Forum tipped logistics as a growth sector, suggesting the price correction was complete.

Last year the UK industrial real estate market experienced a mini-crash as the MSCI UK Quarterly Property Index recorded capital values falling by 26% between July and December 2022. It was described as the industrial sector's fastest loss of value, ever. Now IPF's upgraded five-year forecast shows an annual uplift of 3.3%, an improvement of 75 basis points from the previous quarter. Over the next five years, the industrial sector has the strongest capital value growth forecast, at 2.5% per year.

Thanks to Brexit, supply chain disruption, robot technology and the rising costs and political risks in China and East Asia, the volume of industrial space taken up by manufacturers in key European markets shot up 28% last year as they ‘nearshore’ operations closer to their consumer markets to improve the flexibility and sustainability of their supply chains, according to Cushman & Wakefield.

European manufacturers responded by taking an extra 103M SF in 2022, far ahead of the 80M SF taken in 2021, or pre-pandemic 2019 which recorded 8M SF.

“The cost of a robot for production is broadly similar around the world," Cushman & Wakefield EMEA Head of Logistics & Industrial Tim Crighton said.

"The return on investment is therefore quicker and more attractive in some of the traditionally higher cost labour markets like Western Europe against comparatively lower-cost labour markets like Asia. Layer in the supply chain stress experienced through the pandemic and the shifting sands of global politics and you have a compelling convergence of factors if you are a manufacturer of goods.”