UBS: How investors made 23% returns on a key UK property sector since the Brexit vote
- Booming demand for warehouses used by the likes of Amazon has given property investors a huge 23% return since the Brexit vote, according to UBS Wealth Management.
- Warehouses used for delivery by the likes of Amazon and Tesco is growing rapidly, drying up supply and boosting demand.
LONDON - Property investors have managed to profit from booming demand for warehouses used by the likes of Amazon, according to UBS Wealth Management, boosting returns to 23%.
In a note sent to investors, strategist Caroline Simmons said industrial property, underpinned by growing demand for warehouses required to distribute online shopping, has offered the highest returns of any commercial sector - which also includes offices, hotels, and retail spaces - since June 2016.
Hotels, which have seen tourism boosted by a weak pound since the referendum, have delivered a similarly impressive 17% return.
There's more good news for 2018, too: The price value of the UK's industrial property stockpile is expected to rise by 2.7% this year, despite a downturn in other key sectors.
The online shopping boom
Real estate advisor Colliers International reported in May that demand from online retailers for warehouse space in London particularly was drying up supply and boosting demand, and therefore prices, with 1.3 million square foot of additional industrial floor space now required every year to keep up with retailer demand.
That growth in demand has accelerated as retailers take up smaller urban warehouses in order to cut delivery times. The likes of Amazon, Sainsbury's, and Tesco now offer one-hour delivery times on certain items.
A shakier year
The UK's commercial property sector as a whole is set for a shakier year, due to growing supply and increasing economic uncertainty driven by the Brexit vote.
Overall growth in capital value across the sector - which includes offices, hotels, and retail spaces - is expected to shrink by 0.7% in 2018, according to a consensus measure from the Investment Property Forum.
Growth in rental values is expected to rise by around 0.4%. Combined with a yield of around 5.2%, that means an average return of roughly 4% over the year.
Simmons said the forecasts are "reasonable, given the slowing economic backdrop, the less certain demand backdrop and an increase in supply. We struggle to see how real estate values can grow from here against this backdrop."