Warehouse landlords have unrealistic expectations about rising rents, says Aviva

Aviva Investors – the property investment arm of the insurance and financial services giant – has warned that warehouse landlords have unrealistic expectations about rising rents.

They warned that UK warehouses could be over-priced thanks to “herd mentality” among landlords and buyers.

In a series of new year predictions Aviva Investors said buyers have unrealistic expectations about rising warehouse rents – and this is a “high risk strategy at this stage in the market cycle.”

Aviva said of UK warehouse property: “Industrial assets have benefited from the conviction that the growth in e-commerce will stoke demand for warehouses and delivery hubs.”

The firm says that investors are buying on the assumption that rents will rise by 4-5 per cent a year, and warn: “This is inconsistent with historical trends in the sector, which has historically struggled to generate positive rental value growth in real terms; in most locations the barriers to new development are simply too low for warehouse rents to sustain growth at such rates. The alternative is that investors are speculating on expectations of further yield compression – which is a high risk strategy at this stage in the market cycle.”

Instead the firm advises that rents will grow in some selected locations with limited supply, and that last-mile delivery hubs close to urban centres will also see rental growth.