Commercial real estate consultancy Knight Frank said industrial property rents are expected to increase on average by 3.1% per year between 2022 and 2026, beating expected rates of 0.9% and -0.3% in the office and retail sectors, respectively.
According to the report, the central belt will see above-average growth in lettings of industrial properties, with Edinburgh expected to see a rise of 3.4% and Glasgow just behind at 3.3%.
Knight Frank said the current imbalance between supply and demand for space in and around the two cities is likely to continue, with the level of planned speculative developments insufficient to meet projected needs in the coming years.
The findings build on the property company’s 2022 Logistics Market Outlook report, which found that industrial rents across the UK are set to rise by an average of 4.2% a year over the next five years. This should be driven by Greater London, with an average increase of 8.7%.
Strong rental growth is also reflected in increased investor appetite for industrial and logistics assets. Last year, industrial and retail warehouses in Scotland attracted more investment than offices for the first time in a decade, with deals worth £636 million compared to £488 million, according to Knight Frank.
Scott Hogan, Head of Industries and Corporate Logistics in Scotland, said: “Industrials are still the hottest sector across the UK and it’s no different in Scotland. Rents topped other commercial property types last year and, largely due to the lack of new development in recent years, look only likely to continue to do so – particularly in Glasgow and Edinburgh, where the imbalance between supply and demand is particularly acute. .
“However, the market is starting to change and rising rents will encourage more speculative development. We are already in a new cycle of development, with the opening of spaces on the outskirts of Edinburgh and industrial clusters in and around Glasgow.
“While they are helping to alleviate some of the supply shortage, this is unlikely to be enough in the face of sustained high demand. Developers are also facing a combination of challenges, including inflationary pressures, delivery disruptions and a shortage of supplies and labor, which could limit business in the short term.
He added: “The investment side of the market will likely continue to remain strong, with strong investor interest and rising yields.”
Claire Williams, head of industrial and logistics research at Knight Frank, said: “Investors have continued to increase allocations to the sector.
“Despite the ongoing geopolitical turmoil impacting near-term horizons, the sector’s strong occupier market fundamentals are expected to persist, and it is these market dynamics and the continued structural shift toward higher levels of property spending. line that underlies investors’ rental growth expectations.
“Supply constraints, limited land availability and strong occupier market fundamentals provide confidence that there is further rental growth to come in the UK and that this will drive future returns.”
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