Posted on Apr 01, 2021
In Shakespeare’s Romeo and Juliet, Juliet asks “Wherefore art thou Romeo?“, and later in the same speech laments “Sober or drunk, still fooles, that shall know nothing”.
There are times when we feel almost as confused in our predictions of the future direction of the industrial property market. Trying to determine where the market is heading is a little like reading tea leaves – in a coffee cup. All the elements point in a certain direction – but under the cloud of some major question marks. Record low interest rates, and low vacancy rates, together with low numbers of properties coming to market are pushing prices up and yields down. It’s common sense that cashed up buyers (of which there are many around) would rather a yield of 4% ( in industrial property) than 0.5% in the bank. There is also an element of fear of missing out – which adds to the clamour.
But against that background, banks are tougher on their lending requirements, and there are persistent murmurs that interest rates will start to climb again.
One area where banks appear to be extra cautious at present is financing business owner-occupiers. They are looking more closely than in the past at the strength of the underlying business.
It may be that for many businesses that paying interest is cheaper than paying rent, but they still need to convince the bank of that first. Whilst we hear the success stories of firms in the 12 months since Covid hit, that success is not universal. Supply chain disruptions, labour shortages and uncertainty over just when the borders will open are all potential contributors to doubt for many firms.
Whilst the market may look rosy at present, it would not take a massive change in sentiment, or foreshadowed increase in interest rates for the current trend of reducing yields (and increasing prices) to change direction. We don’t see it happening any time soon – but inevitably it will happen.