Demand for ‘big box’ logistics assets remained buoyant in Q3, with large occupier take-up and investment deals taking place across the country.
In terms of leasing, the Midlands saw the largest share of demand nationally of warehouses of over 100,000 sq ft, accounting for 35.4% of the total take-up, followed by the South East at 19.4% and the North West at 16.6%. Yorkshire also saw a significant uplift from a 3.3% share for the period Q1-Q3 2017, to 13.2% for the same period this year.
BNPPRE research has shown that between 2013-2017 Birmingham saw take-up of warehouses, over 5,000 sqm, reach 1,170,000 sqm, making it Europe’s leading logistics market, ahead of the Greater Paris region.
Furthermore, increased demand on larger units has been a dominant theme so far this year particularly for units between 300,000 and 400,000 sq ft, with 13 units taken compared with five over the same period in 2017.
These national trends were widely mirrored in the investment market. Among some of the key investment deals, NFU Mutual Insurance acquired the currently under construction KitchenCraft unit at The Hub, Birmingham, for £33.7m representing a yield of 4.41%. In Merseyside, Tritax Big Box REIT are forward-funding a low-density building of 361,000 sq ft for £68.7m, as well as forward-funding a logistics unit at Link 66, Darlington, for c. £120.7m.
However, the South East is still achieving the strongest pricing, and continues to outperform national averages, due to the expectation of further rental growth in areas of constrained supply. Key examples include DTZ Investors purchase of a multi-let estate in Deacon Way, Reading for £11.4m at a NIY of 4.48% and BMO’s acquisition of a c. 76,000 sq ft logistics property at Flex Meadow, Harlow for £11.3m representing a NIY of 4.33%.
This investment in the logistics sector has been driven, in part, by high demand for good-quality, well-located stock across the country. Data from BNPPRE shows that more than c. 3m sq ft of speculatively developed logistics units was let to September-end 2018.
James Fairweather, Head of Industrial and Logistics Investment at BNP Paribas Real Estate, commented: “It is reassuring to see that investment levels have remained buoyant throughout Q3. Overseas appetite continued unabated, accounting for around 21% of total industrial and logistics investment, demonstrating international commitment to the UK market.
“The final quarter of the year is already demonstrating a continued trajectory of demand outstripping supply and is expected to deliver another strong period of investment in both industrial estate and logistics properties.”