Six million sq ft industrial space transacted in West Mids up to Q3 2016

John Sambrooks, Partner, Industrial & Logistics at Cushman & Wakefield in Birmingham

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 the West Midlands, demand for new space continues to be strong with almost six million sq ft taken in the first three quarters of the year. The majority of deals signed (61%) were for grade A space as occupiers remained keen to take high quality space despite the continued market uncertainty brought about by the referendum. Demand for Grade A space has been so strong, availability has dropped by a quarter (24%) over the past six months.

John Sambrooks, Partner, Industrial & Logistics at Cushman & Wakefield in Birmingham, commented: “The middle quarters of 2016 were dominated by Brexit, although in the lead up to the big day, the lettings of the last two speculative units (totalling 468,955 sq ft) at Prologis Park, Ryton to Jaguar Land Rover dominated the region’s take-up. In keeping with previous quarters, the automotive sector was the pre-eminent sector in the region led by JLR with other notable lettings to Sertec at Hams Hall and Unipres (92,000 sq ft) at Unit 5 The Hub, Birmingham. Post-Brexit the market continued to brush off any possible hangover with strong take-up across all size ranges.”

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.”