Industrial and logistics activity and investment in the South West will gain new impetus following the UK’s departure from the European Union.
That is the prediction of the head of the South West Industrial & Logistics team at real estate advisors Colliers International, which has released its bi-annual Industrial & Logistics Report showing the sector was subdued in the region during 2019.
Tom Watkins said 2020 looked set for improved levels of activity and investment, as occupiers and investors decided to move ahead after delaying decisions in 2019 to await clarity on the UK’s exit from the EU.
“The South West market has witnessed a renaissance over the past few years with large occupiers, such as Amazon and B&Q locating in the region. That said, 2019 was impacted by the recent political uncertainty, which resulted in a lack of large deals being completed,” he said.
“Looking ahead to 2020, we expect take-up activity to pick-up which will result in more absorption of Grade A planned supply. Occupiers have been waiting in the wings to continue their expansion into the South West, but understandably, decided to delay their boardroom decisions; hence, it is expected more leasing requirements to come to fruition this year.”
He added that investment in industrial and logistics in the South West also looks set to benefit from improved sentiment following Britain’s departure from the EU, following moderate investment activity in 2019 resulting from investors focusing on more established prime UK locations – although despite this, prime yields in the region remained stable at between 4.75% and 5.00%.
“In 2020 we expect investment volumes to recover in the region, as the greater political stability will make South West investment opportunities more attractive to national and overseas investors,” he said.
The bi-annual Industrial & Logistics Report from Colliers underlined the underlying strength of industrial sector, which outperformed all other property asset classes in the UK during 2019 despite the unsettled economic and political backdrop. These strong market fundamentals are expected to drive the sector forward in 2020 as occupiers focus on streamlining supply chains.
Andrea Ferranti, head of industrial and logistics research at Colliers International, said: “Looking forward, investors will continue to search for yields in a low-rate environment, driving further capital growth for the sector in 2020.”
Colliers’ research shows that South West prime rents have remained stable, with average prime rents for large distribution warehouses at £6.40 per sq ft. Similarly, average prime rents for smaller units saw no changes and remained at £7.90 per sq ft.
Although activity was subdued, occupiers continued to target Grade A space in the South West, with Ocado’s acquisition of a speculative unit at St. Modwen Park Access 18, in Q4 2019 providing testimony to the strength of the market. The 151,330 sq ft distribution warehouse reached practical completion in Q1 2019 but was let shortly afterwards on a straight 17-year term.
The largest industrial & logistics deal of 2019 in the South West occurred when Colliers advised Ballytherm on the freehold purchase of the 253,737 sq ft XPO Logistics unit at Oveross Industrial Estate, Ross on Wye.
In terms of investment, the largest transaction occurred when Hines Global Income Trust purchased the single-let warehouse to DSG from M&G for £36.5m at Avonmouth in Bristol, at a NIY of 5.0%. The unit, which was built in 2006, at the time of the purchase had 11.75 year to lease expiry.
