One swallow does not a summer make
Recent news that a site in Park Royal, London was sold for roughly half what it was worth in 2021 does not mean occupiers will see land prices dropping nor rents slowing, explains Property Editor Liza Helps.
THE 2.9 acre site in Park Royal was recently sold to Sunrise Real Estate for £24.51 million roughly half the price it sold for in 2021 when the site sold for around £48 million.
Sunrise bought the property from Marq Logistics which in turn owned the site through its acquisition of developer GLP last year. GLP secured the site in 2021 for a then record price of £48 million.
At the time the market was being driven by an unprecedented shift in consumer behaviour towards online shopping as consumers were locked down due to the Covid pandemic.
Take up hit record levels surpassing 50 million ft2 with 38% of all take up in the first half of 2021 driven by online retailers, while third-party logistics operators (3PLs) accounted for a further 25%. To say the market was hot could be taken as an understatement. It was in this crucible that GLP paid such a high price for possibly what was considered the most well located logistics property in London – 12 Waxlow Road, Park Royal.
It was rumoured that more than a dozen investors and developers were bidding for the site and it was not the only site in London during 2021/2022 that went for a whopping price. Prime industrial sites in Bow and Greenford are believed to have recorded land prices ranging from £19.8 million to £22.7 million an acre making the £16.55 million an acre for Park Royal seem rather reasonable.
The post pandemic adjustment led eComm operators to dump space – usually second hand – back on the market and in effect retrench. This coupled with a massive spike in inflation and increase in interest rates to curb it lead to a cost of living crisis compounding the drop in retail spend overall leading to a sharp drop in space required or needed.
Further economic shocks from the disastrous Liz Truss mini-budget to geopolitical events such as the illegal invasion of Ukraine by Russia which sent oil prices rocketing and continuing inflation – literally put the kibosh on occupiers taking space unless they had no other option.
Initially land prices remained elevated with landowners reluctant to sell for less than they expected or indeed originally paid. The market stalled. In early 2023 Colliers Industrial & Logistics analysts reported that industrial land values shrank by 47.4% in the six months to December 2022, due to inflation and increased borrowing costs.
Investors and landlords who had bought sites at the height of the market were stuck. Appraisals to develop out the sites did not stack up as build costs also continued to be elevated. Most have waited, as evidenced by the marked slow down in speculative development.
For many this has has paid off. As confidence creeps back occupiers are taking space again, and with a limited amount of supply of the right kind, in the right place, headline rents have been maintained even if incentives have been generous.
Some landlords and investors may have to wait a little longer but with the speculative logistics property pipeline in effect constrained if not actually shut off in some locations, sites coming to market still being few and far between, and the planning process taking an age – the supply dynamic should force an increase in rent levels and support those high land prices.
