Is the £800M plus North West industrial market peaking?

InfraRed Capital Partners' sale of a 4.5M SF portfolio of U.K. light industrial assets in the North West and Midlands 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, 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.

B8 Real Estate Director Simon Wood said he recognised the concerns, and that investors are keeping “one eye” on downside risks. However, he told Bisnow that whilst yields may have peaked the North West industrial sector continues to attract interest.

B8 research shows that the total value of North West industrial investment transactions during 2017 reached £818M. This is a post-recession record.

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

“Yields have reached a peak, I guess," Wood said. "The 4.3% recorded on the sale of the Amazon unit at Logistics North, Bolton, set a benchmark which will be hard to better. And, for now, yields like this in North West industrial don’t look bad to London investors.

“The InfraRed deal shows there is still demand there, as does the £49.1M acquisition of the Network North portfolio by Columbia Threadneedle, a net initial yield of 6.3%. The market is certainly toppy, labour supply is getting tight in some areas, there are downside risks and everyone is keeping one eye on them. Too much speculative development in the North West could cause trouble.”

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.