Brexit talks and eCommerce growth set to drive logistics & industrial sector in 2018

The UK logistics & industrial sector will be largely driven by ongoing Brexit trade talks which could impact manufacturing and the growth in eCommerce, according to a report by Cushman & Wakefield.

The report predicts that the demand/supply imbalance in the logistics & industrial sector, compounded by a severe lack of developable land and upward pressure on land values, could led to vertical schemes. This type of development has already been seen in a number of European cities with developers planning similar schemes in locations like Heathrow and Park Royal in London.

The research revealed that annual take-up in 2017 was on par with 2016 at 26.9 m sq ft, although it was 8% below its five-year average. There is currently around 5.6 million sq ft of speculative space under construction and due for completion this year which is set to take Grade A availability to a six year high of 20.6 million sq ft.

On a regional level, however, availability of grade A space varies significantly, ranging from over 6.5 million sq ft in the South East to 266,000 sq ft in the North East. The demand/supply imbalance also continued to put pressure on prime rents and in particular, for larger sheds. Rents grew the fastest in Wales (over 13%) and the slowest in Yorkshire & Humber (2.3%).

The sector delivered a strong performance in the last three months of 2017 with total annual return for industrial and distribution warehouses rising to 20.9% and 17% respectively, up from 17.8% and 14.7% in Q3. Both sectors continue to out-perform the office and retail sectors.

Cushman & Wakefield forecasts that returns for the logistics & industrial sector in 2018 would be moderate, but the continuing diversification of the sector to include multi-level, mixed-use, and urban depot solutions should create opportunities for a wide range of investors.

Bruno Berretta, UK Logistics Insight & Research at Cushman & Wakefield said: “Brexit negotiations will undoubtedly influence real estate decision-making among many occupiers, notably those with European supply chains and regions which have strong trading links with the EU. However, the growth in e-commerce will continue to benefit the sector, as internet sales account for an increasing proportion of overall retail sales.

“Prime yields also continued to tighten last year across most UK markets. With the gap between prime yields in West London and the risk-free rate, investors who remain keen on this sector, may turn to new opportunities that are likely to emerge this year.”