The industrial property sector has been largely unaffected by the Brexit vote with 7m sq ft of logistics space being taken up in the third quarter – in line with the five-year average – and robust occupier and investor demand across most regions, according to Cushman & Wakefield.
E-commerce is a significant driver of this activity with strong demand for logistics space in urban fringes as occupiers seek last mile fulfilment. Retailers, supermarkets and third-party logistics providers are all very active in this market and particularly keen on modern, big box space.
But demand is also robust for mid-size and cross-dock facilities in both prime and second-tier locations as occupiers seek to optimise their distribution networks across the UK.
Development has increased to meet this demand with Grade A available space up 17% in 2016 to date following several years of declining supply. This is in part due to more speculative development, particularly in the South East, Midlands and North West, where demand is strongest.
In Wales, following a slow start to the year, positive occupier sentiment translated into deals and resulted in Q2 and Q3 take-up volumes almost twice the five year average. Demand for new space continues to be strong and there is currently around 1.5 million sq ft of live occupier requirements in the market. However, a lack of available sites combined with land being lost to other uses means that Celtic Business Park remains the only sizeable speculative development in the region. Strong levels of take-up activity combined with a lack of new development has resulted in a fall in availability across the region. Availability is now at its lowest point on record and particularly tight in the high quality grade A market.
Rob Ladd, Partner, Industrial & Logistics at Cushman & Wakefield in Cardiff, commented: “We anticipate that in 2017, take-up will be down on what has been a strong two years for Wales primarily due to the lack of good quality accommodation. This has resulted in occupiers either having to compromise by taking poorer specified buildings, seeking build-to-suit options or considering other locations outside Wales. Due to lack of suitable sites and developer appetite many requirements are likely to remain unsatisfied.”
Investors have also been seeking opportunities outside the established M1 and M6 corridors with interest particularly strong along other primary routes – notably the M4, M5, M62 and main trunk routes across the Midlands. Despite the rise in availability, most regions are struggling to keep up with demand and as a result, Cushman & Wakefield expects further upward pressure on rents moving into 2017.
Whilst investment demand for logistics space is strong, with overseas buyers competing hard with their UK counterparts for limited opportunities in prime locations, some regions may face upward pressure on yields going forward as investors demand higher premiums to compensate for greater economic uncertainty caused, in part, by the Brexit vote.
Simon Lloyd, Partner, Industrial & Logistics at Cushman & Wakefield, said: “The UK is at the forefront of the growth in e-commerce which is accounting for an ever-increasing amount of sales – a trend which is forecast to continue.
“This has led to many companies re-organising their operations and setting up separate warehouses – often in multiple regional locations – specifically to deal with internet sales. Together with the rapid growth of a number of online-only retailers such as Amazon and Wiggle, this has ensured the robust market we are now seeing.
“Also, the renaissance in UK manufacturing over the last 5-10 years has accounted for an increasing share of the industrial/warehouse market, although it is still a smaller market than for warehousing. In some regions, this growth has been led by the automotive sector. But there has also been growth in many other sectors such as pharmaceuticals, engineering and food, resulting is many more skilled jobs.”