The East Midlands led the UK’s industrial and logistics market in the first half of 2016, according to the latest Big Box analysis by property adviser JLL.
Its researchers studied demand for new Grade A industrial space in units of 100,000 sq ft and above, which is regarded as a bellwether for the distribution sector.
JLL’s director, James Keeton, says the East Midlands mopped up 26% of the lettings in England, Wales and Scotland, the largest percentage in the UK with the South-West just behind on 25%.
“Significantly, each of those regions secured a letting of at least a million sq ft in H1; Amazon took 1.05m sq ft at Mountpark Bardon, which is due to complete in October, and The Range signed for 1.158m sq ft at Avonmouth’s Central Park,” he says. Other notable deals in the East Midlands include the completion of 480,000 sq.ft. for Great Bear at the ever successful Markham Vale, J.29a M1.
“The largest Big Box investment deal also happened in the East Midlands, when BNP Paribas REIM paid in the region of £120m for the Amazon distribution centre on behalf of a Korean investor.
“Retailers continued to drive demand for space, and the trend is now very marked for them to either open new fulfilment centres, or to consolidate existing distribution facilities into larger centres to increase productivity.
“We’re also seeing a strengthening of demand for Build to Suit space because e-tail tenants have very specific requirements, and I’d expect that to continue once the market settles down.”
The JLL analysis indicates that the amount of new space reaching the market remains well below its pre-recession peak, hinting at potential supply issues ahead.
However, Keeton thinks the Midlands is well placed to cope, pointing to the number of speculative developments under construction in the region. There are 23 Big Box schemes under way across the country, which would deliver another 4.6m sq ft. Nine of these are in our region, delivering a good supply of immediately, or soon to come to market space, able to capture demand.
Not only that, but we have some very strong strategic sites across the East Midlands able to offer very quick delivery timescales, with further developments coming on-stream. A prime example being the 100 acre Infinity Park Derby. This is ideally situated on the edge of Derby with immediate access to the A50 and onwards to the M1 and M6. It is one the few schemes that has the potential to deliver up to 1m sqft in a single building, subject to planning, the combination of which likely to make it highly attractive to occupiers.“
The report predicts that occupier demand will dip for the remainder of 2016, alongside a slowdown in speculative development and lower interest from investors.
Keeton doesn’t dispute the analysis, but does believe that the fundamentals which make the East Midlands so appealing as a long-term location for distribution and logistics uses remain strong.
“The infrastructure links are excellent, there’s a very strong and flexible labour pool, and being in the centre of the country always has advantages. There has been recent rental growth, but we still see the market balanced in favour of investors and developers,” he says.
“For sure, there will inevitably be a period when developers, potential tenants and investors take time to reflect on their next move amid the political and economic uncertainty post-Brexit
“However, the key driver for occupier demand in this sector has always been supply chain changes, reflecting how the relationships between retailers, manufacturers and other suppliers and their customers are evolving, and that will certainly continue to disrupt the sector.
“As always, disruption creates opportunities for developers who are cash-rich and fleet-of-foot, and for investors who back their knowledge of the market in the search for asset growth and capital gains.”
