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%).
Take-up in the North West reached 4.7 million sq ft in 2017, on a par with 2016, and slightly below the 5-year average of 4.85 million sq ft. Manufacturing was the most active sector, accounting for 42% of total take-up in 2017. Towards the end of the year, Prowell, a German manufacturer, announced plans to build a new 328,000 square feet BTS facility in Ellesmere Port, in what has been seen a vote of confidence in North-West manufacturing post-Brexit.
Sam Royle, Senior Surveyor in Cushman & Wakefield’s Logistics & Industrial team in Manchester comments: “Speculative development across the North West has continued in core locations with another 1.2 million sq ft across 7 buildings currently under construction, taking total availability of Grade A space to 2.5 million sq ft.
“There is however little availability of new builds in the 200,000 – 300,000 sq ft size bracket. All the schemes under construction are below 200,000 sq ft with the exception of 375 at Logistics North, a 375,000 sq ft warehouse developed by First Panattoni and Exeter Property Group in Bolton and scheduled for completion in Q3 2018.”
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.”
