Shift to online retailing drives the Industrial occupier market forward

Knight Frank’s LOGIC report on industrial and logistics property.

The Industrial occupier market remained strong in H2 2016 and shows no signs of waning, underpinned by the continued shift to online retailing.

Despite the economic uncertainty caused by Brexit, occupier demand in the industrial sector strengthened during the last six months of 2016. According to Knight Frank’s latest LOGIC report, a total of 21.7 million sq ft of units above 50,000 sq ft were acquired in H2 2016.

The UK distribution sector continues to benefit from the shift to online retailing, with one in four Christmas purchases being made online, internet-based sales increased to 17% of all UK retail sales in 2016 and this is projected to double by 2023.

The shortage of new and good quality space across all size ranges is driving occupiers to commit to space through pre-letting or Design & Build options.

The Midlands remained the regional focus of industrial activity in the second half of the year and London and the South East also saw a doubling of take-up to 4.8 million sq ft. Again, this increased activity was boosted significantly by the 2.2 million sq ft letting to online retailer Amazon at St Andrew’s Road, Tilbury.

Investor appetite for Industrial stock also remains strong, with investors continuing to be attracted to the sector’s strong income component and positive market fundamentals and according to the IPD Monthly Index, it was the only sector to see positive capital value growth of 1.0%.

The outlook for the sector remains positive in the wake of the Brexit vote. In a market where the current economic climate has caused uncertainty and disruption to many sectors, the industrial and logistics sector continues to benefit from a significant movement into online retailing and the subsequent wave of occupiers this brings with it. Although Brexit has impacted speculative development compounding the demand/supply imbalance, recent speculative schemes have re-positioned rents ahead of historic prime levels and we expect rental growth to continue throughout 2017.

Charles Binks, Head of Industrial Agency at Knight Frank commented:  “Positive market fundamentals have encouraged continued appetite for the Industrial and logistics sector. There is plenty of opportunity for this to continue into 2017, but the shortage of new and good quality second hand space across all size ranges will drive occupiers to commit to space through pre-letting or Design & Build options”.