CBRE has released a benchmark index tracking investment performance of modern logistics stock across the UK.
CBRE claims its UK Logistics Index is the only index that focuses exclusively on the modern warehousing property industry in the UK. In H1 2016, the total return for UK logistics came to 4.4%, less than half the return (8.9%) for the second half of 2015.
However, logistics outperformed the wider industrials sector and all UK property collectively over the first-half period. These two sectors saw returns of 3.6% and 3.0% respectively.
Capital growth accounted for 1.7% of the logistics return with income return making up the remaining 2.7%. The capital growth figure marked a significant slowdown from the 5.9% reported in H2 2015. This is, in part, due to the impact of the changes to Stamp Duty Land Tax in the 2016 Budget.
Over the 12 months to the end of June, total returns in the logistics sector stood at 13.6%, with capital growth at 7.7%.
Rental growth is stable
In contrast, rental growth rates have remained stable at 2.2%, unchanged from H2 2015. It is the second fastest rate of rental growth recorded on the Index, which has been backdated to the start of 2010. At a regional level, the highest returns in H1 2016 were seen in the North of England, where the total return was 6.9%. Returns were also robust in the Midlands at 5.5%, with the lowest returns in the South East, at 3.2%. Superior rental growth in the North and Midlands contributed to this outperformance over the past six months.
The launch of the CBRE UK Logistics Index marks a new phase in what is now a mature real estate asset class, according to Andrew Marston, Director in CBRE’s UK Research team. 'The first index confirms why the logistics sector has been such a popular choice amongst investors in recent years. Regardless of whether we look at a holding period of one, three or five years, logistics real estate has consistently outperformed both all property and all industrials in terms of total returns, capital growth and rental value growth. For example, the annualised total return for the three years to the end of June 2016 for logistics is 19.9%, compared to 11.3% for all industrials and just 8.8% for all property on the CBRE UK Logistics Index.'
The CBRE UK Logistics Index is comprised of repeat valuations of large, modern warehouse stock built since 2000, valued by CBRE, and owned by some of the leading investors in the UK logistics sector. The data for H1 2016 is based on the collective performance of 280 individual assets, with a combined capital value of £8.22 bn (€9.6 bn) at the end of June 2016. The index will be updated every six months.
Too early to see any Brexit fallout
CBRE said it was too early to measure any impact of the result of the UK’s referendum on EU membership due to the timings of valuations that comprise this index. The next update of the CBRE Logistics Index will be released in January/February of 2017 and will report in full performance over the second half of 2016.
According to a spokesperson, the index is aimed at current and potential investors in UK logistics properties who wish to have a clearer understanding on the performance of modern logistics stock as a specific asset class. 'With modern logistics being a relatively youthful subsector, it has often been lost in performance data for the wider industrials sector. But this is a growing and increasingly important property type for which data availability is not as advanced as for some other commercial real estate sector,' she said.
Asked whether the index would be rolled out elsewhere in Europe, the spokesperson said this was a possibility. 'But the initial focus has been to build the UK Index, where the quality and depth of data is available.'
