Labour is the new Battleground in Logistics

CBRE Annual Leeds Market Briefing October 2021

CBRE’s annual Market Briefing in Leeds painted a positive outlook for the city with research from the firm’s Head of UK Research Jennet Siebrits showing that Leeds is outperforming other cities nationwide. Guest speaker, Rob Trevor, Logistics Customer Experience Lead EMEA / Senior Director UK Industrial and Logistics at CBRE Investment Management focused on the importance of investing in ESG, citing labour as ‘the new battleground in logistics’.

According to CBRE’s research, Leeds has not seen the job losses experienced by other cities and this has been boosted significantly through the public sector where the city has seen a strong presence of Department of Health civil servants. Looking ahead, Siebrits predicts that job growth is expected in the business support sectors as well as through the professional and scientific sectors, which in her view is typical of periods of strong economic growth.

During the seminar, Siebrits said that “Economic growth in the UK is expected to be the strongest of any major western economy in 2021/22 and will actually be stronger than China in 2022. This is partially base effects – UK dropped by more than anywhere else in 2020 at 10%, but to have two years of such strong economic growth should indicate enormous opportunity for property sectors.”

This opportunity for the property sector is particularly interesting for the office sector with metrics of growth at CBRE focusing on office-based employment growth. Siebrits expanded further to say, “There is no closer correlation in anything we do than jobs growth and office market performance. This year and next are expected to be strong years for jobs growth by historic standards after an understandably poor 2020.”

Take-up has taken a massive hit nationwide during the pandemic, but less so in regional cites than in Central London, which fell to a historic low. Leeds take-up performed well in H1 2021, just 6% below the five year average. The number was boosted by an 80,000 sq ft pre-let by DLA Piper.

Siebrits stated that Leeds has been identified as one of the UK’s most important life science hubs, highlighting Labcorp’s 68,000 sq ft acquisition at CEG’s Drapers Yard as the first significant life science deal of scale to have occurred in Leeds and the likely start of future activity in a huge growth sector.

“Supply has been pretty stable in Leeds, but we are now at the stage where the availability of new, high-quality space is very limited in the city centre. In the context of a post-pandemic increase in demand for new space, this could create a demand / supply imbalance” said Siebrits.

Looking at the industrial sector, CBRE’s research showed that record demand is drying up vacancy and attracting new investors with quarterly take-up going from record to record as occupiers need space immediately operational. The UK is now the most mature online market in Europe as Covid lockdowns further increased e-commerce with a lasting effect. Yorkshire and the North East have attracted many big box logistics occupiers due to better labour force availability with investment volumes also soaring as prime yields reach record lows and prime rents are expected to increase over 5% per annum during the next 3 years.

“We will see more speculative developments and a shift away from more bespoke products to more general logistics space” commented Siebrits, reporting that 87% of households did some form of online shopping last year. “E-commerce penetration is leading to more demand which is depleting vacancy and leading to accelerating rental growth. The step change in online shopping is massive for logistics, but supply is really constrained.”

This sentiment was echoed by CBRE Investment Management’s Rob Trevor; “69 sq ft of warehousing space is now required for every house in the UK to provide capacity for people’s online and general shopping.”

Trevor highlighted that if the government is to hit its target for delivering 300,000 new homes every year then a further 21 million sq ft of industrial space will be needed to serve those homes.

He told the audience that the fundamentals of the UK logistics property market remain strong with CBRE Investment Management maintaining income return throughout the pandemic due to the resilience of its tenants. He highlighted the Humber Ports as being a key attribute as a Gateway for the Yorkshire region boosted by the new freeport status, with Yorkshire’s great connectivity along with its high population density providing both consumers and employment attracting well known logistics operators.

Restricted land supply and construction cost inflation were said to be the biggest hurdles facing the UK logistics market with reports of price increases for some components rising up to 25%.

ESG is a top priority for investors according to Trevor; “Labour is the new battleground for logistics operators. Investors are demanding Wellness as those occupiers who have good ESG and Wellness standards are retaining staff. He predicted that Investors won’t invest in non ESG compliant buildings in the future and that this is mirrored by occupiers with evidence of some turning down BREEAM Very Good buildings in favour of higher specified BREEAM Excellent as a new minimum requirement.”

At CBRE Investment Management’s Overland Park scheme in Leeds where they are speculatively developing a 65,000 sq ft warehouse they are planning to introduce a range of ESG and wellness initiatives including a basketball court and outdoor green areas for staff. “We are determined to introduce these initiatives, ESG & Wellness is here to stay and form an intrinsic part of our logistics strategy” he concluded.