05 Jun 2024 3 min read

Beyond beds and sheds: Industrial real estate in a 4D world

By Bill Page

We expect industrials to outperform in the coming years, but could investors overlook new and growing segments?


The following is an extract from our report ‘Industrial Real Estate in a 4D World, which considers the prospects for the sector in the context of four key megatrends shaping the global economy.  

‘Beds and sheds’ has been an investment mantra for some time and with good reason, given established tailwinds and expected performance. Investment volumes from industrial remain above long-term averages despite a weak overall investment market1. 

Meanwhile, following the sector’s repricing from summer 20222, LGIM Real Assets forecast outperformance from the sector. Being overweight industrial has worked; UK funds that outperformed over 2023 had an overweight allocation to ‘beds and sheds’ in common. Meanwhile, the sector has given investors an additional 6.4% p.a. over all property over five years, and 6.1% p.a. over 103. Also, average allocations have grown: using the MSCI Quarterly Digest as a proxy, institutional weights generally showed a 35% allocation to all industrials at the end of 2023 compared to 15% 20 years ago4. 

Segments within a popular sector 

We think there are at least seven segments within industrial that are differentiated by specification as well as function: multi-let estates, urban logistics, regional logistics, trade parks, self-storage, and cold and open storage. 

This list could be expanded to include factories (whether traditional or hi-tech labs or giga factories) and specific industrial processes such as waste to energy, but we restrict it to more investible segments. We have also chosen to exclude things like dark kitchens or dark stores as we feel this is more a description of a function within a conventional industrial unit than a dedicated specification. 

It is worth pausing to consider data centres. These are a rapidly growing part of the investible universe for real asset investors with compelling structural tailwinds. However, in operation they are dissimilar to conventional industrial and are better regarded as digital infrastructure, in our view.  

Furthermore, lot sizes can be very large, creating concentration risk for most conventional real estate funds. Having said that, we also recognise that the skills in site selection, assembly, development and power provision are similar to those required for modern regional logistics. We therefore see data centres as an important strategy for industrial investors in providing exit opportunities from existing industrial holdings, with transferable skills in site selection and development, but do not see datacentres as an ‘in use’ industrial segment. 

Evaluating risks 

Investment performance has been supported by low vacancy and supply tension fuelled by net stock loss over the long term as estates were converted into housing (or the Olympic Park). 

Development-led supply risk remains low due to complexities in delivery compared to a ‘single box’ regional logistics, while planning policy tends to favour residential. Business creation across all sectors has been strong over the medium term, especially in London and the South East, supporting the stock of small and medium sized enterprises (SMEs), which could offer some income diversification benefits5 

Although there are cyclical risks from rising occupier costs, we think that will most likely result in slowing rates of rental growth – compared to the 8.7% p.a. seen over the last three years6. Structurally, government support for innovation may offer support for ‘makers’ within expanded and targeted supply chains. Cyclically, we see potential opportunities for selective equity led development within existing estates and capitalising on current market pricing to re-enter the market, particularly where asset management can aim to drive performance from relatively complex holdings. 

To read the full report, click here. 



1. RCA, part of MSCI, year-end 2023 data.

2. Figures from MSCI Monthly Digest suggest current values are >25% lower than 2022 peaks.

3. Data from MSCI to Q4 2023 and our own analysis.

4. MSCI Quarterly Digest Q4 2023, standing investments capital value.

5. It should be noted that diversification is no guarantee against a loss in a declining market.

6. MSCI Quarterly Digest, Q4 2023

Key risks

The value of any investment and any income taken from it is not guaranteed and can go down as well as up, and investors may get back less than the amount originally invested.
Whilst we have incorporated ESG information into investment decision making and stewardship practices, there can be no assurance that any responsible investing goals will be met.

Bill Page

Head of Real Estate Markets Research

Bill is LGIM Real Assets' Head of Real Estate Research. He has responsibility for the formation of house views and inputs into fund strategy. He has 20 years’ industry experience. He is a voting member of the Real Estate Investment Committee and actively contributes to the platform’s office and industrial strategy.

Bill joined LGIM Real Assets in October 2012, having spent seven years at JLL where he was EMEA Head of Office Market Research. Prior to JLL Bill worked at Estates Gazette Group. He chaired the British Council for Offices’ Research Committee between 2015 and 2018 and sits on the IPF Research Steering Group.

Bill graduated from Lancaster University with a first class degree in geography. He holds the IMC certificate and IPF Diploma.


Bill Page