Multi-Let: August 2022

August 2022: Market overview

Headline multi-let rental growth accelerated in H1 2022. This mostly translated into record reversion as contracted rents failed to keep up with the rapid growth in the market. The economic backdrop is poor but diverse modern multi-let occupier demand is relatively robust and continues to outstrip supply, with most occupiers currently able to absorb or pass on rent rises. Consequently, while we expect there to be an increase in the multi-let default and vacancy rates from their records lows we do not see them increasing to the magnitudes of previous recessions. ERV growth from H2 2022 onwards should come down to more moderate levels but we do not expect it to turn negative.

Development pipeline records suggest that there are 337 multi-let schemes at various stages from site acquisition to under construction across the UK, totalling a potential 27.5 million sq ft. More detail is given in the report at a regional level.

Increased cost and reduced availability in debt markets curtailed Q2 multi-let investment dramatically to only £620m. The drop in competitive tension has knocked the ‘froth’ off prices and caused prime multi-let yields to soften, typically by around 100bps or more. The SONIA forward curve suggests that the Bank rate could be at 4% by early 2023. Outward yield shift and the drop in market rental growth is set to dampen multi-let total return to 12.6% in 2022 and to -1.9% in 2023 in the first negative total return since 2008.

Contributors

Many thanks to the leading UK multi-let industrial property investors that contributed their tenancy data for the study.