The UK logistics & industrial sector will be largely driven by ongoing Brexit trade talks which could impact manufacturing and the growth in eCommerce, according to a report by Cushman & Wakefield.
The report predicts that the demand/supply imbalance in the logistics & industrial sector, compounded by a severe lack of developable land and upward pressure on land values, could led to vertical schemes. This type of development has already been seen in a number of European cities with developers planning similar schemes in locations like Heathrow and Park Royal in London.
The research revealed that annual take-up in 2017 was on par with 2016 at 26.9 m sq ft, although it was 8% below its five-year average. There is currently around 5.6 million sq ft of speculative space under construction and due for completion this year which is set to take Grade A availability to a six year high of 20.6 million sq ft.
On a regional level, however, availability of grade A space varies significantly, ranging from over 6.5 million sq ft in the South East to 266,000 sq ft in the North East. The demand/supply imbalance also continued to put pressure on prime rents and in particular, for larger sheds. Rents grew the fastest in Wales (over 13%) and the slowest in Yorkshire & Humber (2.3%).
The South West was a rare UK region to witness record levels of take-up in 2017, albeit significantly skewed by a bumper Q2, and in particular Amazon’s 1.25 million sq ft development of multi-storey premises in Avonmouth, which accounted for 30% of total take-up.
Philip Cranstone, Associate in Cushman & Wakefield’s Logistics & Indsutrial team in Bristol commented: “Demand in the region remains steady, and the supply imbalance is now gradually being redressed through new mid box speculative development in key locations, such as Richardson’s two Bristol schemes – Western 105 with Curtis Hall, and More Central Park with Barberry Developments.
“Both come on stream in 2018, and whilst the strong demand for mid box distribution and smaller accommodation is not disputed, the success of 2018 in total take-up terms will depend very much upon the success of a number of larger second hand distribution centres which are also boosting supply levels.
He added: “Rents and capital values continued to increase in 2017 underpinned by the growth in secondary values, but new prime rental levels are expected to be set in 2018 through the new speculative development being brought forward.”
Cushman & Wakefield forecasts that returns for the logistics & industrial sector in 2018 would be moderate, but the continuing diversification of the sector to include multi-level, mixed-use, and urban depot solutions should create opportunities for a wide range of investors.
Bruno Berretta, UK Logistics Insight & Research at Cushman & Wakefield said: “Brexit negotiations will undoubtedly influence real estate decision-making among many occupiers, notably those with European supply chains and regions which have strong trading links with the EU. However, the growth in e-commerce will continue to benefit the sector, as internet sales account for an increasing proportion of overall retail sales.
“Prime yields also continued to tighten last year across most UK markets. With the gap between prime yields in West London and the risk-free rate, investors who remain keen on this sector, may turn to new opportunities that are likely to emerge this year.”