While industrial landlords are set to benefit from rising rental income driven by record low vacancy rates on the eastern seaboard – CIP fund manager Jesse Curtis said on Tuesday that “positive leasing activity and rental growth would support valuations” – they will not be able to count on big valuation gains to bolster their balance sheets.
Some may even record property values falls as cap rates rise, a point highlighted by David Libling, chief executive at industrial property specialist Pipeclay Lawson, which expects yields to rise a further 150 basis points.
Matt Webb, a director of industrial at valuation firm m3property, said he was not surprised at the latest update from CIP given transaction activity had slowed down and deal metrics were being re-assessed.
“Industrial property been on an almost unprecedented run for the last seven years, but yields are now at record lows and interest rates are rising,” Mr Webb said.
“With a 10-year government bond yield at 3.4 per cent, it’s hard to justify buying an industrial property at 3.5 per cent.
“I am hearing stories that analysts cannot stack up numbers [on industrial deals] that they could stack up six months ago.”