2016: a stand-out year for South West logistics sector

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Chris Williams, Industrial Logistics Assistant Surveyor at LSH Bristol

The South West was the UK’s stand-out performer in the industrial and logistics sector last year, a report by national commercial property consultancy Lambert Smith Hampton (LSH) has revealed.

The Industrial and Logistics Market Report says that there was a record annual take-up of 8.6 million sq ft across the region in 2016 – up from 7.1m sq ft in 2015 – with two major build-to-suit deals at Central Park, Bristol to Lidl (600,000 sq ft) and The Range (1.2 m sq ft), being significant contributors to the positive performance.

Chris Williams, Industrial Logistics Assistant Surveyor at LSH Bristol, said activity in the other smaller size-bands fell short of 2015 levels, most notably in the sub 10,000 sq ft market, which was down by 17% year-on-year.

Supply remained stable throughout 2016, Chris added, following a sharp fall the previous year, while there were notable changes within some size bands.

Logistics supply (warehouses over 100,000 sq ft) increased to 2.2 m sq ft – up 38% year-on-year, while the supply of units under 50,000 sq ft fell 18% to 5.9m.sq.ft.

“A stand-out of the year was grade A supply, which rebounded by a significant 36% year-on-year and now stands at 1.5m sq ft,” said Chris. However, grade A space still only accounts for 15% of the region’s total, which is just below the nationwide level.

Speculative development made a welcome return last year, the report stated, including L&G and St Francis’s Horizon38 scheme in Bristol, which will provide 231,000 sq ft across three units in the first of four phases.

Rental growth also picked up in 2016, with prime headline rents in the five main markets of Exeter, Poole, Bristol, Swindon and Plymouth, increasing by an average of 4.4% – up from 2.2% in 2015.

In Bristol, rents for mid and big-box units are expected to surpass £6.50 per sq ft and £8.00 per sq ft for smaller units; potentially stimulating further speculative development in the area. In Swindon, some parts of the market saw an increase in headline rents, but short supply is leading to fewer incentives, Chris said.

There is a lack of stock in parts of Exeter, which is pushing rents up in Marsh Barton, Sowton and Exeter Airport, which is leading to developers to begin speculative developments at Hitchcocks Business Park, Willand and Liverton Business Park, Exmouth.

The report also confirms there remains a healthy market for small units in Cornish towns such as Truro and St Austell.

The national picture

The overall view is that 2016 was a good year for the industrial and logistics occupier market.  Across all sectors, UK-wide take-up totalled 99.2m sq ft in 2016, up 3% on 2015 and 6% above the five-year annual average.  Notably these figures reflect strong pent-up demand for quality premises.  Grade A space accounted for a record 34% share of total take-up.

The uplift in demand was driven by a record year of activity in the logistics sector, where take-up increased by 6%, surpassing 2014’s previous high and totalled 37.3m sq ft.  Accounting for over 20% of logistics take-up – a record share for a single occupier and pivotal to the sector’s strong performance – is pure play online retailer Amazon. However, despite improved take-up year-on-year, there was a greater depth to the market in 2015, with some significant development in the medium-sized sector (10-50,000 sq ft).  Of particular note, take-up in the mid-box warehouse market was down 24% year-on year.

Uncertainty fails to hinder rental growth

Uncertainty surrounding the EU Referendum also did little to hinder rental growth in the sector – an ongoing lack of supply has driven another year of strong rental growth. Across 60 UK markets, prime headline rents increased by 5.3% in 2016, rising from 3.9% in 2015.