Since the Brexit referendum, it has felt like we have been in a period of perpetual uncertainty. It has been marked by brief periods of progress followed by months of uncertainty. Whilst Brexit has been the defining political event, we have also suffered the first Tory leadership race in 2016, a general election in June 2017 and now, of course in 2019 a new Tory leadership race to choose a new prime minister.
What does this mean for the multi-let industrial (MLI) sector? Investment volumes are down more than 25% across all sectors, and MLI is no different. Whilst the drying up of supply has been married by a reciprocal reduction in the number of buyers, we are seeing a disconnect between pricing aspirations of vendors and where purchasers can get comfortable. This is exacerbated in parts of the market where institutional investors have driven pricing over the past year but are now noticeably absent. Where deals are happening, we are not seeing a significant softening of yields as most vendors are happy to retain assets if pricing aspirations are not met unless there is a compelling reason for a sale. The open-ended funds have not seen the outflows that led to a flurry of sales in 2016 and many other investors are happy to sit on their hands and enjoy the attractive income returns that their MLI assets produce. Debt remains cheap and readily available, so investors are happy to refinance and sit it out until there is some clarity about what the world will look like.
Against the backdrop of uncertainty, it seems amazing that businesses have been able to make any medium/long-term strategic decisions. However, we have seen continued strong occupational performance across our multi-let industrial (MLI) portfolio. Our tenant base is heavily weighted towards SMEs and it seems that they are focused on getting on with running their own business and will continue to invest where they see opportunities. It may be that continued macro uncertainty will dent this performance in time but there is no evidence of this so far. The problem is that, while there is a line in the sand at the end of October that both Johnson and Hunt are focused on, this can easily be kicked down the road. The ever-turbulent political climate is interlinked closely with economic stability meaning that if October does prove to be the schism as it is being touted to be, then it may bring improved liquidity to the market as investors seek to protect their positions or take the opportunity to sell. If October proves to be the same non-event as March 2018, it is difficult to predict how long the lethargy in the investment market may last.
There is, of course, the ever-present spectre of ‘No Deal’, and, while that would provide an element of certainty, it is not clear whether it would lead to the type of environment businesses are after. We are doing what we can to prepare for this uncertain future – keeping leverage low and some cash in the bank so that we are able to react to and capitalise on any opportunities that may come our way.