The growing shift to online shopping by consumers is behind many of the recent well-publicised closures on the high street. But the trend is also bolstering tender opportunities in the industrial sector as new logistics and warehouse construction keeps growing to meet demand for distribution space.
A recent trading update from Segro, one of the largest owners of logistics warehouses, suggests activity and tender opportunities in the sector remain brisk. The firm has seen a strong start to 2018 having secured a record £27 million of new rent in the first quarter and with occupational demand encouraging across all its markets, particularly driven by the growth of online retailing.
Segro completed 146,500 sq m of new industrial construction projects in the first quarter. Moreover, the volume of new space either approved or with building projects under development across the group, stood at 1 million sq m at the end of March, up from 693, 900 sq m at the start of the year.
Indeed, Glenigan’s Construction market analysis shows tenders are currently being invited on a £10 million Segro industrial building project in Newham, covering 4795 sqm and with work set to start in late 2018.
£350 million development cap-ex
Today, Segro’s development pipeline includes new pre-lets totalling 490,000 sq m, of which 270,000 sq m is to online retailers. At one key site, SEGRO Logistics Park East Midlands Gateway, the pre-lets include 122,000 sq m to a major online retailer and 60,000 sq m to a third-party logistics provider. Overall, Segro expects its development capital expenditure to exceed £350 million for 2018.
Elsewhere, the go-ahead for a third runway at Heathrow Airport is likely to boost construction tender leads in the industrial sector further, as the growth of air cargo creates extra demand for warehouse space in the area. Segro, which owns significant portfolio around Heathrow, is well-placed to benefit.
The potential for construction projects for the internet shopping sector has also been highlighted by the recent surge in the share price of Ocado, the pioneer in grocery deliveries, which is set to join the FTSE 100 this month. The outlook for the group which has a major facility at Andover and is set to open a new one at Erith in coming months, has brightened recently helped by a series of international partnerships.
Meanwhile, the outlook for tender opportunities across the industrial sector remains promising. Glenigan Construction market analysis shows that the value of underlying industrial construction starts rose by 19% last year and were up by 1% in the four months to April this year, compared to the period last year. The regional picture varies but activity looks particularly strong in key regions such as the East of England (where the value of starts is up 95% in January-April), London (up 24%) and the West Midlands (up 52%).
A mark of confidence in the sector in the East of England is the start of construction work in recent weeks on two speculative logistics units covering 350,000 sq ft which are being developed by Jaynic at Suffolk Park, near Bury St Edmunds. Readie Construction is expected to complete the scheme by next November.