Increased appetite for last mile logistics boosts H1 returns, says CBRE

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The Logistics property sector recorded a 5.0% total return for the first half of 2017, according to figures released in the CBRE UK Logistics Index.

The index which launched in August 2016, utilises real world valuations of large modern logistics assets to track the investment performance of what is an increasingly popular and distinct asset class amongst investors.

The figures show a material improvement on both halves of 2016, where the six-monthly returns were 4.4% in H1 and 4.1% in H2. On an annualised basis, for the 12 months ending June 2017, the total return on UK Logistics was 9.3%, up from 8.6% for the year ending December 2016.

The small improvement in returns are due to stronger capital growth over the first half of 2017. Income return over the last six months stood at 2.7%, unchanged on the previous six-month period. In contrast, capital growth was 2.3% during the first half, up from 1.4% in the second half of 2016. Rental growth, at the UK level, also remained stable.

There was a mixed performance for logistics at the regional level, with assets in the London, South East and Eastern region being the main driver of the national improvement in returns. Over the six months to the end of June, the total return for the region was 6.0%, up from 5.1% in H2 2016. The twelve-month return pushed up to 11.5% from 8.6% at the end of 2016. Capital growth was again the main driver, with values up by 3.4% over the first half.

Elsewhere in the country, the Midlands saw a total return of 4.1% for the first half, up from 3.4% in H2 2016. The region also saw an improvement in rental growth, with rents rising by 1.1% over the first half, from 0.7% over the previous six-month period. Other parts of the UK marginally outperformed the Midlands on the total return measure, with the North of England returning 4.3% and the South West and Wales 4.6% over the first half.

Andrew Marston, Director within the UK Research team at CBRE comments: "The superior returns that have come from South Eastern logistics assets, combined with data that suggests stronger performance from assets of less than 300,000 sq ft, is indicative of investors' growing appetite for exposure to the so-called 'last-mile' section of the market. These are the smaller warehouse units, close to large centres of population, such as London, that have become a critical node within the delivery network for online retail purchases."

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