According to Savills latest Big Shed Briefing report, total take-up of UK warehouse space (units 100,000 sq ft +) exceeded 14.62 million sq ft (1.35 million sq m) in the first half of the year, 29% above the long term average of 11.3 million sq ft (1.049 million sq m), driven by the continued demand from high street and online retailers.
Examining demand by occupier type, Savills figures show that online retailers and parcel delivery companies now account for 25% of the market in 2016, up from last year’s previous record of 17%.
Savills notes that so far, 2016 has seen strong levels of take-up for units over 500,000 sq ft (46,451 sq m), with five deals already completed this year, compared to a yearly average of seven. This includes Amazon taking 1.3m sq ft (120,773 sq m) at Bardon and L&G homes taking The Big 555 in Sherburn In Elmet. However, Savills anticipates that occupiers will have to turn to the build-to-suit (BTS) market to satisfy larger requirements in the future, especially as the rate of speculative announcements continue to slow. Already in 2016, 48% of the space transacted has been for bespoke BTS units. This is due to the fact that Grade A and large unit supply continues to fall, with only one shed of this standard over 400,000 sq ft (37,161 sq m) currently available to pre-let at Magna Park in Lutterworth. On a smaller scale, the supply of existing units of over 100,000 sq ft (9,290 sq m) stands at only 29 million sq ft (2.69 million sq m), across 170 separate units, which has already fallen by 14% since the start of the year.
Kevin Mofid, head of industrial research at Savills, comments: “The supply of good quality large units remains at critically low levels, meaning that the increased prevalence of the build-to-suit segment within the market is here to stay for the foreseeable future.”
Regionally, the South West is continuing its record year, transacting 3.6 million sq ft (334,450 sq m) in the first half of the year, which is 2.1 million sq ft (195,096 sq m) more than the annual average. One of the largest local deals in the region, and country, has seen The Range take 1.158m sq ft (107,581 sq m) at Central Park. On the other hand, Savills highlights that the South East has seen significant recovery in the second quarter with 1.3 million sq ft (120,773 sq m) of deals compared to a record low in the first quarter of just 262,000 sq ft (24,340 sq m).
Richard Sullivan, national head industrial and logistics at Savills, adds: “Despite the current market uncertainty, we expect the manufacturing and distribution sectors to remain robust. Whilst it is likely that speculative development will slow, we do not anticipate that take-up levels will drop significantly as there are still a number of live large unsatisfied requirements across the country including Lidl in the North West and Amazon who are continuing to roll out its Prime and Fresh services.
“Overall, we are operating in a very different landscape to 2008/9 when almost 100 million sq ft of space was actively being marketing. Even accounting for the current development pipeline, supply remains at historic lows, in contrast to strong take-up levels.”
Furthermore, Savills notes that the investment market for logistics units continues to attract investors. In the first half of 2016 £1.2 billion of stock was transacted, which is £350 million above the long term average. Key to this has been the increased prevalence of overseas investors in the market, combined with the increased levels of take-up from the likes of Amazon creating a supply of prime investment stock. As a result, Q2 saw two of the three keenest net initial yields paid this year for Amazon units, with a 4.5% yield at Bardon and 4.66% at Airport City, Manchester respectively. Acting for the vendor, Savills also advised on one of the largest deals of the quarter with Tritax Big Box REIT’s purchase of the DSG unit in Newark for £77.3 million, reflecting a net initial yield of 5.76%.
James Williams, head of industrial and logistics investment at Savills, adds: “‘Whilst there has been a great deal of uncertainty in the investment market since the Referendum, indicators from some completed sales and bids are that investors are still keen to acquire good quality logistics opportunities.’
