Investment in the UK distribution warehouse sector hit record levels in 2013, according to research published by Savills.

Investment in the UK distribution warehouse sector hit record levels in 2013, according to research published by Savills.

The international property adviser said that about £2.5 bn (€3 bn) was invested in the sector, an increase of nearly 50% on 2012. The rise was driven by a continued growth in demand for the sector from an increasingly diverse investor group from the UK and overseas.

James Williams, investment director at Savills, commented: 'Interest from investors in the logistics sector has gained incredible momentum over the last 12 months. While UK funds and REITs have dominated the market, we are also seeing increasing interest on a global platform from a diverse range of buyers from the USA, Russia, the Middle East and South Africa.

'This rise in demand has inevitably generated strong yield compression and resulted in distribution warehouses outperforming all other property sub-sectors in 2013, according to IPD, with returns of 15.2% being delivered.'

Key deals that took place in 2013 include Prologis’ acquisition of a £247 mln portfolio from London Metric, Gazeley Properties’ funding of John Lewis at Magna Park in Milton Keynes to Aviva Investors for £76.5 mln with a net initial yield of 4.9%; Henderson’s acquisition of RD Park, Hoddesdon for £74.5 mln at 6.8%; the sale of Next’s Distribution Centre in Rotherham to Legal & General for £89.9 mln at 5.5% and the purchase of Marks & Spencer Distribution Centre in Castle Donnington by Tritax Big Box REIT for £82.57 mln, reflecting a net initial yield of 5.2%.

Andrew Bull, industrial director at Savills, said: 'Looking forward we anticipate investor demand will remain strong for the logistics sector, buoyed by a continuing improvement and confidence in the occupational markets. In addition, the absence of a loosening in supply of suitable investment stock will ensure yields remain robust during 2014. Further yield hardening is possible over the short term however we do not expect to see it on the same scale as 2013.'