EUROPE - Investors and occupiers are "out of sync" on UK logistics, according to IPD research manager Greg Mansell, with investors clinging to the belief that regional rental is driving yields despite the range of rental value halving last year and the relatively strong take-up this year, even in regions such as the Midlands that have been badly hit by economic uncertainty.

Launching the latest BNP Paribas Real Estate/IPD logistics index, Mansell said it was unclear whether investors were reacting to divergence in regional performance or merely investing according to their own institutional risk appetite. 

He added that investors were more "in sync" with occupiers in their appetite for prime versus secondary assets - and for assets with refurbishment potential.
BNP Paribas Real Estate investment director Ed Cornwell said investor attention had switched from investment in multiple locations in the interests of diversification toward core regions.

"But it isn't stacking up," he said. "Three or four years ago, investors relied on yield compression for a return. Now they can't do that so they'll have to listen to occupiers."

Cornwell said he expected pricing for logistics to continue to move "quite aggressively", but that pricing was not necessarily related to real estate.

"Investors are comparing returns to bond yields rather than real estate," he said.

He added that there was a danger yields would compress further as a result of the impact of retail trends.

"Covenants are the driver of retail now - and Tesco is more attractive than the high street," he said.

BNP Paribas Real Estate associate director Kevin Mofid said the current UK logistics market was characterised by "the good, the bad and the ugly". 

Despite a sufficient level and spread of overall supply, the supply of new stock had been dwindling quarter by quarter.

In some regions, notably South Wales, almost all stock is second-hand. With no prime stock coming onto the market, there is potential for rental increase on prime assets as tertiary rents fall.

In contrast, vintage supply started to come back into the market from 2009 as a result of major retailers either going into receivership or cutting back on property assets.

Mofid cited Marks & Spencer's recent announcement that it would dispose of 250 units in the short term.

"Some of the returning stock is not tertiary - it's modern and kitted out," he said.

While new stock is seeing an albeit slight return to rental growth, rents on vintage stock are down 8% compared with 0.1% growth between 2000 and 2010.