Industrial renaissance?

There is something about industrial and logistics that appeals to the real estate purist. It is perhaps the best distillation of the two most important property fundamentals of all - size and location - and is ruthlessly focused on operational need. No companies are choosing their warehouses to showcase a new concept or act as an extension of their brand.

It is (just about) within Big Picture's professional lifetime that industrial property was widely seen as, well, boring compared to the glamour of retail and shiny corporate offices. It is not all that long ago that Segro was dismissed as a 'stamp collector', working to deliver predictable yet unspectacular returns; today, it is the UK's largest REIT, holding a portfolio worth £22 billion.

The drivers of this shift - such as growth in both large-scale and last-mile delivery requirements, turbocharged during the pandemic - are well understood and mark a fundamental change in long-term demand for such space. But in hindsight the market got a touch over-excited; total returns over the past five years show a sector where occupier demand is strong, but capital values had got a little bit ahead of themselves.

There are signs that this is changing though, and that after a period of consolidation a new phase of capital growth beckons. To take Segro, which today published its results for 2025, valuations saw their second consecutive year of modest growth - reversing the falling trend of 2022 and 2023 - and the firm secured nearly £100 million of additional annual rental income. As a bellweather company, these are positive signs for the sector as a whole.

This week also saw an interesting research report from Aberdeen Investments, looking at the impact of a new era of European reindustrialisation in response to rising geopolitical risks and a growing focus on resilience. It is of course a multi-faceted issue, but to put it in simple terms the need to address vulnerabilities in a range of industries - defence, energy, chemicals, critical minerals, food, automotives and tech - will see fundamental shifts in supply chains. In Aberdeen's assessment, it is the Netherlands, Germany and the UK that stand to benefit the most.

The relationship between industrial output and industrial property is not a direct one, but the two are clearly highly correlated. Even looking at just supply chain resilience, small shifts in how much inventory companies seek to keep in hand will have disproportionately large impacts on warehousing requirements. Expansions in tech and manufacturing capacity will need commensurate increases in data centres and factory space. The mismatch between supply and demand looks set to grow.

Logistics will be an area of major discussion at MIPIM, where Innesco's MD Dan Innes will be chairing two conference panel sessions as part of the main event programme: one looking at geopolitics and demand, the other focusing on the factors that are influencing how capital is allocated to the sector. In a time of flux and great opportunity, the discussions will provide no little insight - we hope to see you there.