At a Glance
BIG SHED LOGISTICS MARKET
Q2 2014
OCCUPIER MARKET
• The logistics market is currently avour of the month amongst the real
estate community but the lack of Grade A availability in the core
locations of the Midlands and South East has meant that the occupier
market has actually seen a fall in take-up.
• A lack of currently available Grade A units in prime locations has
meant that take-up is down year-on-year by 20%.
• Whilst the sub 300,000 sq ft size ranges have been limited by lack of
supply in the core regions, at the other end of the size range there
have been two signi)cant design & build deals.
• Waitrose have pre-let 950,000 sq ft at Magna Park in Milton Keynes,
Primark have exchanged with London Metric for a 1.06m sq ft shed on
their 70 acre East Midlands site, known as Central A14. The Range are
believed to have found a home in Wiltshire to build their 750,000 sq ft
Southern Distribution Centre and should complete before year end.
• Outside of the Midlands and South East, the occupational demand has
been focussed on urban logistics. These are smaller units at edge of
town centres that are able to ful)l the ‘last-mile’ delivery function for
many of the 3PL’s.
• The North West’s largest deal saw M&G let 162,116 sq ft to MayrMelnhof Packaging in Deeside, whilst, in the South West, Farmfoods
took 175,000 sq ft at Central Park, Severnside.
CONTACTS
Nick Waddington Head of Industrial and Logistics Agency, 0121 234 6869, [email protected]
Hugh White Head of National Investment, 020 7338 4415, [email protected]
Robert Taylor Research, 020 7338 4257, [email protected]
INVESTMENT
• The logistics investment market has seen an incredible start to the
year, with £1.1bn transacted during Q2 into distribution warehouses
alone, bringing the half year total to £2.1bn.
• Total Returns, according to BNPPRE Logistics Index, reached 15.1% for
2013 and it’s anticipated that 2014 could see Total Returns top 17%.
With this level of return it’s easy to see why the logistics sector is
attracting so much attention, both from UK based REIT’s and funds as
well as overseas investors.
• As yields have continued to compress, we have seen investors move up
the risk curve to take on secondary assets and those with shorter
dated income, subsequently helping drive investment volumes thus far
in 2014, with twice as many deals done by end of June when compared
to H1 2013.
• Tritax Big Box REIT has been the largest investor to date, with just over
£210m spent on four units, with their £98.7m purchase of the
Morrisons distribution unit in Sittingbourne being the most expensive
purchase (5.17% NIY).
• US Private Equity investors, such as Logicor, have sought to create
platforms on a pan-European basis with the intention to become the
‘go to’ provider of distribution accommodation for retailers and 3PLs.
• Investor appetite is underpinned by the structural changes within
consumer retailing, with more distribution space being required to
service internet retailing to the detriment of ‘traditional’ retail
accommodation.
• With the idea of rental growth, a long mooted subject in logistics
circles, now beginning to gain traction, further demand is likely but the
Big Shed take-up remains subdued… level of liquidity left in the market could provide a stumbling block.
Huge jump in investment volumes…
Source: BNPPRE Research
Source: BNPPRE Research/Property Data
Huge jump in investment volumes…
BIG SHED LOGISTICS MARKET – Q2 2014
CONTACTS
Nick Waddington Head of Industrial and Logistics Agency, 0121 234 6869, [email protected]
Hugh White National Investment, 020 7338 4391, [email protected]
Robert Taylor Research, 020 7338 4257, [email protected]
OUTLOOK
• The outlook for the remainder of the year is positive for the Big Shed
logistics market. The continued drive from online and omni-channel
retailers to recon)gure their supply chains will ensure that retailers
and 3PL’s dominate the take-up numbers for 2014.
• UK manufacturing has continued to rebound during 2014, despite a
drop in output during May, with the growth in manufacturing
employment now at 1.8% over the last 12 months we would anticipate
seeing further demand from the sector, particularly the automobile
and its supply chain, throughout the rest of the year.
• Whilst we may not see growth in take-up numbers, due to the lack of
already built supply on the market, there is plenty of demand in the
market and occupiers will have to satisfy this down the design and
build (D&B) route.
• Developers continue to ready their land banks and the relatively short
lead in time of 6-9 months from planning approval through to
completion means that most developers that are unwilling to take on
the risk of speculative development don’t have to, especially for the
largest sheds, where D&B is the occupiers’ preferred choice.
RENTS
• Rental growth is back on the agenda for Big Sheds, after many years
out in the wilderness.
• We are forecasting rental growth of 2.1% for 2014, with 2.8% growth
in 2015 for Distribution Warehouses across the UK.
• On a regional basis this means rents could be pushed on towards £6
per sq ft in ‘Golden Triangle’ locations in the Midlands, whilst London
and the South East continues as an anomaly to the rest of the
country, with rents even on secondary space seemingly pushing on at
a daily basis.
• IM Properties’ recent letting to DAU Draexlmaier at Birch Coppice
achieved £5.75 per sq ft and The White Company paid £5.50 per sq ft
at Black Swan in Northampton, although they were given 23 months
rent free.
• Prologis’ spec development of 139,000 sq ft, across two buildings, at
Prologis Park, Heathrow will attract rents in the region of £12 per sq
ft.
• Elsewhere, prime rents in the North West, Yorkshire and the North
East remain at c. £4.75, although pre-lets would attract a premium at
above £5.25 per sq ft, as build costs continue to escalate.
Address Size (sq ft) Market Tenant/Purchaser Vendor/Lessor Rent (per sq ft)
Plot 310, Magna Park, Milton Keynes 950,000 South East Waitrose IDI Gazeley £5.75
Black Swan, Cob Drive, Swan Valley, Northampton 191,114 East Midlands The White Company Aviva Investors £5.50
Stonebridge Cross, Droitwich, Worcestershire 231,420 West Midlands VAX AXA REIM £4.60
Unit 2, Anniesland Industrial, Glasgow 128,000 Scotland PHS Services Limited Hermes Real Estate £5.50
Coronation Road, Unit 10 Matrix Park, London 96,034 Inner M25 Designers Guild Ltd British Overseas Bank Nominees £11.25
Rents on the rise…
Yields continue to sharpen…
2014 Top Occupational Deals
Source: BNPPRE Research / BoE / IPD
Source: BNPPRE IPD Logistics Index
Source: BNPPRE Research