Lambert Smith Hampton (LSH) has released its latest Industrial and Logistics Market report. According to the findings, 2018 saw a total of £8.4bn of assets change hands in the industrial and logistics sector.
Overall occupier take-up in the UK was 4% down on the five-year average – but better than it could have been, given Brexit anxiety. Logistics, meanwhile, performed well with UK take-up in units above 100,000 sq ft almost reaching 2016’s record high.
LSH says that the industrial sector outperformed the rest of the commercial real estate investment market, but that strong overall results for the sector hid a striking difference in performance between regions.
The East Midlands had a record take-up level of 14.6m sq ft. However, take-up in the West Midlands hit a six-year low.
Matthew Tilt, director of industrial agency at LSH in Birmingham, said: “The reduced take-up recorded in the West Midlands last year can be attributed in part to a lack of large ‘oven-ready’ logistics sites, together with a sustained period of falling supply resulting in a distinct lack of available buildings for occupiers.”
Matt said that for the first time in many years, total availability across the West Midlands rebounded by 27% during 2018 to stand at 23.0m sq ft, its highest level since 2015. The rise was fuelled by a substantial 44% growth in big box supply. This reflected a combination of speculative development completions, such as Wolverhampton450 (450,000 sq ft) and several second-hand units coming back to the market, the largest being Goliath, Coventry (666,000 sq ft).
In contrast, supply continues to diminish at the smaller end of the market, despite an increase in the share of grade A space.
LSH expects 11.7 million sq ft of speculative development to come forward in 2019. However, the current boom in speculative development is heavily weighted to the logistics sector. There have been limited development in the smaller market and there is a danger that the lack of supply of quality medium-sized and small properties will continue, despite robust levels of demand.
James Polson, national head of industrial and logistics at LSH, commented: “The hive of activity across the industrial and logistics sector continues unabated. The driver remains the UK’s evolving e-commerce sector, with investors and occupiers alike clamouring for stock.
“Interestingly, however, there are clear areas to watch. The challenge is clear, to satisfy demand across the entire market by providing the right properties at the right time.”
Looking ahead, investors looking to drive performance will now be banking on rental growth alone, as rising land values and record low yields mean that the era of yield compression has largely come to an end. However, UK industrial and logistics is still forecast to outperform the wider market over the next five years.
The threat of a no-deal Brexit has resulted in a cautious start to 2019 but if this is avoided, pent-up demand could be released with a rebound in activity. Logistics occupiers are likely to take more space as e-commerce continues to grow, though as the sector is heavily reliant on an EU workforce, it could be affected by a growing labour shortage over the coming years.