Demand for UK logistics space continues to be resilient with the first quarter of 2018 being the strongest for the past three years, according to research from Cushman & Wakefield.
Total take-up of logistics space in the first three months of 2018 climbed to 10.2million sq ft, outpacing the same quarter last year by 60%. The purpose-built share of the market was especially strong indicating that many occupiers are looking beyond Brexit and taking longer-term commitments.
In the first quarter, purpose-built deals accounted for 35% of the total number of transactions and 67% of total take-up (by sq ft). Retailers (including eRetailers) took the lead over manufacturers during the first quarter, accounting for 57% of take-up.
UK omni-retailers have been busy ensuring their portfolios support the changing nature of their businesses as online sales account for an increasing share of total turnover. M&S’s decision to close its Neasden site in North-West London to open a new 495,000 sq ft distribution centre north of the M25 is an example of this type of restructuring. Meanwhile, H&M plans to consolidate eFulfilment activities in a new 750,000 square feet purpose-built facility in Milton Keyes later this year.
The research also shows that take-up by pure online players is on the rise, accounting for 24% of total retailer take-up in the first quarter. After a pause in its network expansion at the end of last year, Amazon resumed its growth plans to sign a 500,000 square foot purpose built deal at East Midlands Gateway Park.
With Shop Direct taking another 550,000 square feet, East Midlands Gateway ended the quarter accounting for 78% of total pure player take-up.
Regionally, the Midlands and South-East accounted for the lion’s share of Q1 take-up of 79%. Meanwhile, other regions had their fair share of large deals including Premier Farnell (360,000 square feet) in Yorkshire and B&Q (375,000 square feet) in the South West.
Bruno Berretta, UK Logistics & Industrial Research & Insight, Cushman & Wakefield, said: “High levels of demand during the first quarter of this year point to continued robust performance for the remainder of 2018 for the UK logistics sector. While Brexit and pricing concerns are intensifying, strong market fundamentals support an optimistic outlook.”
Philip Cranstone, Associate, Logistics & Industrial Agency, Cushman & Wakefield in Bristol, said: “Purpose built development has contributed significantly to take-up in the South West over recent years, with significant activity from major retailers in the Severnside area of Bristol. Take-up in Q1 2018 has again been underpinned by further purpose-built development in the form of the 375,000 sq ft B&Q (Kingfisher plc) pre-let in Swindon.
“The 6.3% rise in prime rents in the region over the past 12 months has been evident, and is in part indicative of the lack of newly available supply which is now reaching critical levels, and together these factors are leading to increased confidence in the South West market, encouraging developers to invest in the region and more importantly build speculatively. Speculative development is generally circa 100,000 sq ft and below, with Richardson / Curtis Hall well underway with a 105,500 sq ft building in Bristol known as Western 105, and Barberry / Richardson the latest to launch a scheme during Q1 – More+ Central Park in Bristol, a 556,000 sq ft speculative scheme targeting the mid-box market.”
From an investor perspective, diminishing levels of developable land, particularly in key logistics locations like the West Midlands and near the M25, along with new entrants to the UK market, means that bidding on the limited amount of available land is increasingly competitive. In fact, Panattoni was the latest developer to enter the highly competitive UK market, recently announcing a speculative development programme that plans to target up to 3 million square feet of new product annually.
Prime rents grew at record levels during 2017, according to the report. Nearly a third of the 73 submarkets covered by Cushman & Wakefield, registered double-digit increases in prime rents during the calendar year. Virtually flat prime rental growth during the first quarter suggests that last year’s rental growth performance is unlikely to be replicated during 2018.
Longer-term, supply constraints combined with a diverse occupier base that includes a growing number of online retailers, point to the strongest rental growth prospects in the South-East, particularly for urban depots.
