Multi-Let: December 2022

December 2022: Market overview

The UK is in recession and high frequency indicators suggest that almost all consumer and business sectors and geographies are in retrenchment. Insolvencies are back up to around 80% of the peak last seen during the global financial crisis. The financial markets may have settled but the current trajectory for interest rates is still markedly higher than only a few months ago. Prime multi-let yields took another significant step up in Q3 and are now typically 150bps above their Q1 lows. Valuations data are now also rapidly catching up with the direct investment market, which cumulated to an astonishing -9.1% monthly total return in October the most negative on record.

Lettings activity and exceptional prime rental growth over recent years have taken a pause. However, the direct investment market is showing some signs of stabilisation. There are more potential buyers than a month ago after the period of so called “price discovery”. Investors remain buoyed by the fundamental robustness of the multi let income stream, borne out of the diversity and resilience of the occupier base set against an effectively neutralised development supply.

Our “equilibrium yield” modelling points to a peak multi-let equivalent yield of 5.9% in 2023, which will drive a short sharp correction in values. Yield movement is set to take around 34% from multi-let capital value peak to trough and contribute to a -13.9% total return in 2022. More encouragingly, UK multi-let capital values should regain momentum and return to the 2021 nominal baseline by 2026. And after a subdued period over 2022-24 multi-let total return is forecast to outperform the other property segments over 2025-27.

Contributors

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