Latest research reveals that the Yorkshire and North East Industrial and logistics sector had a strong 2021 with demand for units sized 100,000 sq ft-plus reaching take-up levels of 7.5 million sq ft and 3 million sq ft respectively.
According to commercial real estate firm Colliers’ latest Industrial & Logistics Viewpoint, there is currently only one grade A unit immediately available of this size, demonstrating the demand and lack of supply currently available in the region.
Colliers highlights that while take-up in the Yorkshire market recorded a slight annual contraction in 2021, compared to a record take-up of 7.7 million sq ft for 2020, figures were only suppressed by a lack of available stock.
In Yorkshire last year, investors delivered 1.4 million sq ft of speculative space across five units in excess of 100,000 sq ft, with the last unit of this phase of speculative development recently completing at the end of January, iP2F Iport Doncaster. This is the only unit currently available for immediate occupation in the Yorkshire region. Due to this absolute lack of space, Yorkshire prime warehouse rental growth is expected to reach 6.1 per cent this year and 4.8 per cent in 2023.
Robert Whatmuff Head of Industrial and Logistics in Leeds at Colliers comments: “The Yorkshire market witnessed a relatively active development programme in 2021 but one that was still well outstripped by demand. While the Yorkshire has not traditionally been seen as a region for speculative development, there has been a noticeable shift towards speculative build programmes for those sites that are deliverable and suitably infrastructure connected – occupier interest in deliverable sites is very strong.
“Rental values have seen a significant increase over the last 12 months and this trajectory is continuing with the supply and demand imbalance. The current shortage of available quality space and insatiable occupier demand has driven the sector to the top of investors wish lists. The market shows no signs of slowing.”
The report explains how the Yorkshire market recorded a new record investment volume of £894 million, up 89.8 per cent year on year. Looking at investment activity in the North East, investors purchased a total of £144 million worth of industrial assets, an increase of 44 per cent year on year.
The largest deal of the year occurred in Yorkshire when Arrow Capital Partners forward funded the Amazon pre-let 2 million sq ft warehouse for £233 million, a price reflecting a net initial yield (NIY) of circa 3.35 per cent in Q4.
Amongst other key deals of the year, Kennedy Wilson Europe purchased a distribution warehouse of 215,728 sq ft let to Royal Mail at Wakefield Europort for £25.37 million at a NIY of 4.05 per cent and Total Developments sold Total Park (a multi-let scheme) in Leeds to Aberdeen Standard Investments for £24.8 million at a NIY of 3.43 per cent.
Looking at historical rental growth, the annual average rents for all sizes has risen by 7.9 per cent in Yorkshire and by 3.5 per cent in the North East. In 2022, we expect more rental growth to come due to new schemes coming online while demand for space to remain robust. This year, we envisage more single-let warehouse investment deals agreed at an equivalent yield between 3.75 per cent and 4.00 per cent and are expecting rents in excess of £7.25 per sq ft in Yorkshire to be agreed during 2022.
Andrea Ferranti, Head of Industrial and Logistics Research at Colliers commented: “The performance of the UK industrial market is breaking records and investors are betting on the long-term performance of the sector. Prime warehouse rents will rise by 12.5 per cent in 2022 and 8.5 per cent in 2023. We predict that increasing rents, land values, construction costs, logistics and labour costs will not dissipate in 2022 and that occupiers will need to act quick to secure a deal. We expect there will be more bidding at uncomfortable levels and purchasers might need to consider speculative funding to seek higher returns due to yields being at historic lows.
“The warehouse of the future will require more highly skilled people, a robust power supply, a good pool of labour and also Grade A workspace to not only attract and retain talent but also investors. More ESG regulations will also be introduced which will further affect the sector from a cost perspective as investors seek to purchase net-zero properties and occupiers are required to adopt more sustainable technologies.”