Multi-Let: June 2022

June 2022: Market overview

There have been some eye-wateringly positive recent data for UK multi-let. Occupier demand is broad-based, and prime ERVs in London in Q1 2022 were up nearly 60% since end-2020, with many regional markets posting figures of up to 40%. Void rates have fallen to or near historic lows, and 2021 was the lowest year for multi-let defaults on record. Investor appetite has been rampant and prime multi-let yields fell as much as 135bps in the year to Q1 2022. This has generated over 50% average annual total return for all grades of multi-let units in London and, incredibly, potentially over 100% for some prime assets.

The many positive endorsements for the sector are wholly justified, but it is also apparent that much of the rental increase is still notional, with underrentedness having jumped to 20% in London & the South East. Meanwhile, the UK company insolvency rate has been trending sharply upwards recently now that government support has been withdrawn from highly indebted SMEs, which is a potential warning sign for the multi-let default rate. Multi-let yield tightening slowed in April and May, and the depth of investors on any one deal has thinned somewhat. Driving this element of hesitancy is rising debt costs, the narrowed multi-let risk premium and extra scrutiny of exit yields. Consequently, after an almost 9% multi-let total return for Q1, this should slow over the course of 2022. We expect a UK multi-let annual total return of 16.6% in 2022, before falling back to high single digits in 2023.

Gerald Eve is the first property consultant to gather the data and conduct the quantitative analysis to estimate the EPC landscape across UK multi-let. In this report we assess the risks and opportunities in terms of legislative timing, geography, unit size, tenant type, lease expiries and impacts on market rent.

Contributors

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