UK INDUSTRIAL SECTOR WITNESSES RECORD TAKE-UP IN H1 2018
Industrial take-up in the UK for the first half of 2018 has soared past 2017 according to the latest figures from CBRE. Take-up for the first half of 2018 (at 17.4M sq. ft. in 51 deals) exceeded the whole of 2017, representing approximately 60% of the record year of 2016. Q1 2018 at 10.6M sq. ft. (28 deals) was the highest take-up on record. 68% of take-up was for design & build pre-let warehouses, 24% for existing built stock and 8% for speculative development.
In H1 2018, the star performer was the East Midlands which at 6.92M sq. ft. in 14 deals equates to some 39.8% of the UK’s overall take-up. This is an increase in the East Midlands of 336% on H1 2017 and 111% on H1 2016. The South East was again robust with 3.6M sq. ft. (13 deals) followed closely by Yorkshire & North East (7 deals) at 3.26M sq. ft. After a quiet Q1, the North West bounced back with 1.31M sq. ft. of take-up (6 deals) in Q2.
In respect of size bands, the majority of the buildings fell in the 100,000 sq. ft. to 199,999 sq. ft. banding (49% by count/20.7% by floor area). There were 8 deals in both the 200,000 sq. ft. to 299,999 sq. ft. and 300,000 sq. ft. to 399,999 sq. ft. size bands, 1 deal in the 400,000 sq. ft. to 499,999 sq. ft. bracket and 9 deals above 500,000 sq. ft. The average eaves height was 12.94 metres, and then some 28% of the take-up was to existing or ‘under construction’ buildings that are cross-docked. 18 of the 51 deals are in respect of buildings that are currently under construction and exchange of contracts has taken place.
There is currently 19.89M sq. ft. of Grade A stock available (representing 14 months supply based on the 5-year average take-up). This includes 11.7M sq. ft. of speculative development in 43 schemes currently under construction. This compares to 19 months availability of second-hand stock (11.53M sq. ft.). Second-hand availability has appreciably fallen over the past few months, assisted by lettings.
Regarding sector representation, some 32% of take-up was to the online retailers (defined as those retailers with no physical store presence), 21% to the 3PLs, 14% to the traditional retailers and 7% in respect of post & parcels.
With regard to pre-let design & build warehouses there are currently 26 buildings under construction with an aggregate floor area of 11.7M sq. ft. (average size of 450,000 sq. ft.). The majority of new build is taking place in the East Midlands and South East.
With 17.4M sq. ft. of take-up over the past six months, the logistics market is proving resilient, and there remains a substantial demand/supply imbalance. Online retail take-up is again significantly influential as increasingly more consumers are using smartphones as their shop fronts. However, demand remains buoyant from other sources such as the 3PLs and the traditional retailers.
Despite uncertainty surrounding Brexit and potential implications to the UK, particularly of tariffs on goods and services the logistics market is in a strong place. It is likely that there will be a softening in the logistics market in the next few years due to wider macro forces, but that is not evident at the current time with rental growth remaining strong.
There will inevitably be disrupters to the market including the advancement in technology, principally affecting the supply chain such as blockchain rather than specification and design of the warehouses. We will also see availability of labour becoming a fundamental challenge to the sector as will availability of power. Whether the government listens to the industry regarding the thorny issue of reducing business rates remains to be seen.