Research commissioned by law firm Forsters has revealed that property investors and developers are predicting continued rental growth this year despite the economic conditions.
Forsters’ report, ‘Outside the Box: Supporting an Industrial Evolution’, is based on a survey by FTI Consulting’s professional research team in the first quarter of 2023. 61 UK-based professional investors and developers in UK real estate assets were surveyed while another four leading developers and investors were interviewed about their experiences in competing for land, investment, and occupiers while adapting to the shifts taking place in uses, formats, locations, and policy.
Almost half (46%) expected an increase in asset values and rental levels with 39% expecting an increase in occupier demand especially for urban and last mile logistics.
Interestingly, the research suggests that there may be some differences in what investors would like to spend their money on versus what developers are looking to supply. It seems investors are looking to back transport and logistics, retail (13 percentage point difference for both), and post and parcel delivery (8 percentage point difference) while developers are looking to data centres (13 percentage point difference) and food and beverage (7 percentage point difference).
While investors can be confident of long-term occupier demand and the relative safety of industrial compared with offices or retail, developers still need to overcome planning and construction risk. To make a scheme stack up, growth in rental income cannot fall too far behind increases in inflation and construction costs. Assuming inflation has peaked, these barriers to speculative development may ease as 2023 continues.
Forsters partner Victoria Towers said: “Investors are confident of long-term occupier demand and of overcoming construction risk as inflation peaks.”
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