Deal activity in the logistics sector slowed in Q2 but contributed to the best half year since 2015 according to research by Cushman & Wakefield.
In total, 6.3 million sq ft was transacted between April and June this year, 32% down on the y-o-y total and largely due to uncertainty surrounding Brexit. E-commerce continued to dominate take-up, accounting for nearly 50% of all deals, with Amazon investing in it’s first ‘mega’ shed (1.5 million sq ft) in the North East.
The report also revealed that developers are addressing the demand/supply imbalance through new construction, with 8.7 million sq ft of speculative space due to reach the market in 2018. As a result, Grade A availability has risen by 18% to 23 million sq ft since the beginning of the year, with the South East and North West registering the sharpest increases (59% and 52%) over this period.
Prime annual rental growth for larger distribution units returned toward the five-year average, with Wales (9.7%) and the South East (6.0%) registering the most significant uplifts. Prime yields have stabilised at 5.2%.
In the Investment market, preliminary estimates revealed that £2.5 billion worth of logistics/distribution properties changed hands in H1, down 26% on the corresponding period in 2017. Despite the slowdown, interest in the sector remains strong, particularly from overseas investors.
The report highlighted that, regardless of Brexit, UK logistics property is expected to continue to benefit from the growth of ecommerce which reached a new high in May, accounting for 18% of total retail sales.
Bruno Berretta, UK Logistics & Industrial Research & Insight, Cushman & Wakefield, said “With less than a year before the UK officially leaves the EU, many occupiers have turned their attention towards Brexit and this has had a material impact on the deal flow in Q2, with fewer transactions agreed.
He continued: “Unless there is a visible breakthrough in negotiations, this uncertainty could extend into the second half of the year, when an official declaration outlining a blueprint for future UK-EU trade is expected during the quarterly EU summit in October. An upturn in activity is possible particularly given that enquiry levels (for units of 50,000 square feet and above) have remained relatively stable in H1 2018 compared to H1 2017.”
In the South West, deal activity was relatively quiet, with the letting of a 134,000 sq ft facility in Bournemouth to Gama Aviation being the most notable transaction. Availability of second hand grade B/C space has steadily risen over the last six months to five million sq ft. Grade A availability is also set to rise as developers bring forward sites, particularly in the Bristol/Avonmouth area. These include the former Astra Zeneca site where Mountpark has planning permission for up to 1.3 million sq ft of space and Richardson and Barberry’s More+ Central Park, can accommodate up to 550,000 sq ft of small-mid box units (13,000 to 105,000 sq ft).
Philip Cranstone, Associate, Logistics & Industrial at Cushman & Wakefield in Bristol said: “The South West has been behind the core UK locations in terms of replenishing stock levels through new development, and as a result it has suffered some of the most critical supply issues in the UK, which has undoubtedly had a severe impact on take-up in the first half year of 2018. Whilst the availability of some large second-hand distribution centres has contributed to an overall increase in supply over the period, it is the speculative development of 100,000 sq ft units and below which will really assist in meeting market demand in the region. Developers have continued to acquire sites with a series of new scheme launches so far in 2018, but in take-up terms the market will not really see these make an impact until 2019 at the earliest.”
