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Written by Paul Fairlamb, Commercial Property Chartered Surveyor

Falling occupier demand for retail space and the changing face of the office sector due to evolving working patterns have led many commercial property investors to move away from acquiring in the retail and office sectors and look much more favourably on the industrial market.

Market summary

The rise in demand for industrial space and the reduction in the construction of new industrial units over recent years, have contributed towards an upward pressure on rents for industrial buildings. There is also a notion that whilst firms no longer crave a retail presence on the High Street, there is still considered to be a more long-term demand for manufacturing space. The rise in ecommerce businesses has also increased demand in the sector as companies that do not need a retail presence still require warehouse space from which to operate their businesses. All of these factors have contributed to a general increase in demand from occupiers.

It has also resulted in a significant improvement in the industrial investment market. This increase has led to a high demand for good quality industrial investments and a compression in the yields achieved across both the prime and secondary investment markets.

Although as always, much will depend on location, lease terms and tenant covenant strength, prime industrial investment yields have compressed to 4% in the London area, with core regional centres such as Birmingham seeing yields of around 5%. We have now also seen the ripple effect in other regions such as the North East and Yorkshire.

Case study

In 2017, YoungsRPS was instructed by a management client to restructure the lease for an industrial property, a unit at Wakefield 41 Business Park in Wakefield.

The property is relatively modern and in a prime location, close to Junction 41 of the M1. It is let to a strong tenant but there was less than 12 months of the lease term remaining and both the landlord and tenant were keen to enter into a new lease so that both sides could benefit from the certainty that would bring. A new longer lease with a rental increase of more than 10% was achieved. On completion of the new lease, we were instructed to market the investment for sale. There was a substantial amount of interest from parties throughout the UK and the sale has now been concluded at an excess of £1.8 million. The sale price equated to a yield of 5.8%. This demonstrates the strength of the industrial market at the moment.

It is important when considering selling an investment, to look to maximise its value by restructuring the lease where possible, before bringing it to the market, particularly when the investment yields achievable are low. This is most likely to maximise the price achieved.

If you are considering investing in commercial property, selling an existing investment, or looking to appoint a managing agent for your existing properties, please contact a member of the YoungsRPS team for further advice.

Contact Paul Fairlamb from our Newcastle office on 0191 261 0300 or email paul.fairlamb@youngsrps.com

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