Transcript of PRIME LOGISTICS
PRIME LOGISTICS The definitive guide to the UK’s distribution
property market
Q4 2015 Bulletin
• Take-up falls 5% to 9.98 million sq ft in Q4
• However, 2015 total of 44.4 million sq ft was the largest on
record
• Amazon acquires 15 buildings totalling 2.4 million sq ft during
2015
• Occupier choice remains limited but quality of supply
improves
• 50% of all development starts in 2015 were speculative
• Prime yields stabilise as pressure to invest eases
• More prime investment opportunities expected in 2016 given
speculative pipeline
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PRIME LOGISTICS The definitive guide to the UK’s distribution
property market
Q4 TAKE-UP DOWN 5%
Take-up during Q4 was 9.98 million sq ft, which whilst representing
a 5% quarterly fall was still above the five-year quarterly average
of 9.6 million sq ft. This pushed the annual volume of take-up to
44.4 million sq ft – the largest we have recorded and 5% up on
2014.
It was activity in the East Midlands, particularly the Northern
East Midlands, and, the North West which drove take-up during Q4.
However, some of the largest deals which were agreed during Q4 were
elsewhere as the 313,047 sq ft MK300 unit in Milton Keynes was let
to XPO, Bibby acquired 281,000 sq ft at G Park Wakefield and Alloga
UK pre-let 220,000 sq ft at Castlewood Business Park.
However, it is Amazon who has stolen the headlines again during Q4,
committing to 5 buildings totalling around 715,000 sq ft, including
a 271,350 sq ft unit at the World Logistics Hub in Manchester.
Amazon was the most acquisitive occupier of 2015, taking 15
buildings totalling 2.4 million sq ft. Planning applications for
some of these buildings indicate that they may be used for the
storage and distribution of food, an observation which supports the
idea of these buildings being used for Amazon Fresh or Amazon
Pantry, the online grocery arms of the business.
STRONGEST EVER YEAR
The types of occupiers taking space now compared to 2007 highlights
just how much the nature of demand for industrial space has changed
over the last few years. In keeping with the changes we are seeing
in consumer shopping behaviour, supermarkets have largely been
replaced with internet retail companies and discount retailers such
as Poundland, Aldi and Amazon. Whilst the proportion of take- up
represented by retailers and wholesalers is roughly the same as
2007, at around 35%, the business plans and logistics models of the
modern occupier are very different.
Take-up of floorspace for internet retail distribution (not
including dedicated parcel delivery companies or 3PLs) totalled
more than 5 million sq ft in 2015. This represents 12% of total
occupier take-up for the year and is significantly up from the 3%
recorded in 2009 as occupiers continue to take space and realign
their distribution networks. With Euromonitor suggesting that the
UK is forecast to generate over £18 billion in additional internet
retail sales to 2019, and using the ratio established by Prologis
that around 930,000 sq ft of additional logistics floorspace is
taken to each additional £1 billion of internet retail sales, and
the sector looks set to continue to be acquisitive.
QUALITY OF CHOICE IMPROVES
The availability of logistics property has been incrementally
falling since 2010. Little by little, space has been occupied and
not replaced. However, such has been the response from the
development market during 2015 that the availability rate for all
qualities of building levelled-out at 6.8% at the end of Q4. The
actual volume of space on the market, including speculative
developments under construction, even posted a marginal
increase.
Whilst supply has seemingly bottomed-out, it has done so at an
all-time low level, and occupier choice remains very limited.
Occupiers do have a slightly improved quality of choice however, as
the speculative space currently under construction enters our
supply figures. Consequently, the availability rate of new or
refurbished stock on the market actually rose from 2% to 2.4% at
the end of 2015.
Occupiers with large requirements continue to have a limited number
of existing buildings available to them. This is compounded by the
fact that even if occupiers choose to design-and-build premises for
themselves, the availability of land, particularly in London and
the South East remains extremely tight.
Annual take-up by occupier sector Quarterly availability by
qualityQuarterly take-up and five-year average
Source: Gerald Eve Source: Gerald Eve Source: Gerald Eve
Quarterly take-up 5 year average
Q 3
20 13
Q 4
20 13
Q 1
20 14
Q 2
20 14
Q 3
20 14
Q 4
20 14
Q 2
20 15
Q 1
20 15
Q 4
20 15
Most Active Developer 2015
Most Acquisitive Occupier 2015
Amazon was the single most acquisitive occupier in 2015 taking 2.4
million sq ft
Prologis was the most active developer, starting over 2 million sq
ft of space
Speculative Purpose-built
DEVELOPERS RESPOND IN 2015
Several large purpose-built developments completed in Q4, such as
the 1 million sq ft Primark warehouse near Thrapston, the 650,000
sq ft John Lewis shed at Magna Park in Milton Keynes and Aldi’s
584,000 sq ft unit at Logistics North in Bolton. On a quarterly
basis, the volume of development completions rose by 63%.
In terms of development starts, 18.9 million sq ft of logistics
property started construction during 2015, half of which was
speculative. This marked a 28% annual increase in development
starts by volume on 2014. Whilst developers responded to the supply
shortage, they did so carefully and considerately – focusing on
well- located core locations and constructing a size and
specification of building which would attract the broadest remit of
occupiers. The average size of building constructed speculatively
during 2015 was 155,396 sq ft – considerably smaller than the
197,000 sq ft in 2007, although in terms of quantum, more than
twice the amount of speculative space commenced construction in
2007 compared to 2015.
At the end of Q4 2015, excluding those buildings which have been
let during construction, there was 7.8 million sq ft under
construction speculatively, 47% of which was in the East and West
Midlands.
YIELDS LEVEL-OUT
The amount of money in the market and the pressure to invest,
particularly by institutional and retail funds, moderated in Q4. As
a result, we saw prime yields stabilise and investments did not
generate the same levels of frantic interest as seen earlier in
2015.
The number of prime opportunities remains tight but we have seen an
increase in secondary product on the market (mostly parcelled into
portfolios) as landlords attempt to recycle trickier or smaller
assets to take advantange of the lack of prime alternatives.
Interestingly, it was overseas investors or other new entrants to
the market who were some of the keenest bidders on this type of
stock in Q4 as they sought to get exposure to the sector.
Tritax was the most acquisitive investor of 2015 and were involved
in two of the largest deals of the quarter (see table above).
Overall they completed 11 transactions, worth over £575 million
during 2015, which increased the size of their portfolio to £1.26
billion. Having said this, by their own standards, Tritax were not
as acquisitive in Q4 as they had been earlier in the year, due to
the combination of less pressure to spend but also fewer prime
opportunities.
OUTLOOK
2015 turned out to be a strong year for logistics property with
robust levels of occupier and investor demand and a return of
meaningful levels of development, particularly of speculative
space.
Looking to 2016, investors may have more choice at the prime end of
the market as the developers and owners of the speculative schemes
under construction look to realise profit from their endeavours and
investors look to profit-take from investments bought earlier in
the cycle. Whilst an increased supply of institutional quality
investment stock would certainly be welcomed, it would be likely to
divert some of the attention from the secondary market. This could
arguably lead to secondary yields stabilising or even moving out
slightly as investors revert to better quality opportunities.
We expect investors to continue to be attracted to the sector's
occupational supply / demand imbalance. This is still sufficiently
acute to suggest a compelling rental growth story and will only be
helped by the forecast growth of online retail sales, which are
predicted to reach 19% of all sales by 2020. We expect prime rents
to continue to post positive growth during 2016, albeit at around
half the rate of growth seen in 2015.
Fourth Quarter 2015
Annual development starts by type Rolling annual warehouse
investment volumes
Property Location Purchaser Vendor Price
(£m) Size
Henderson Prologis 87.3 1,200,000 6.0 Various
J33 M62, Knottingley Wakefield Tritax Big Box REIT Caddick
Developments 59.0 635,000 5.3 TK Maxx
103 Westerhill Road Glasgow Moor Park Capital Partners Delancey
55.0 875,000 8.5 HarperCollins
Knowsley Business Park Liverpool Tritax Big Box REIT Hargreaves
family 42.4 578,108 6.3 Matalan
M6EPIC Wigan Standard Life Stoford Developments 30.0 335,264 4.8
Poundland
Unit 4, Worton Drive Reading LondonMetric Private investor 28.8
229,992 5.8 DHL
Big Blue, Deykin Avenue Birmingham Standard Life LondonMetric 18.2
209,993 5.2 WH Smith
Units A & B, Omega Boulevard, Capitol Park
Doncaster Cabot Properties Savills IM 14.0 221,592 6.8 Howdens
and
Croda
20 07
20 08
20 09
20 10
20 11
20 13
20 12
20 15
Most Acquisitive Investor 2015
Tritax Big Box REIT completed transactions worth over £577m in
2015
PRIME LOGISTICS 2016 FULL UPDATE Now in its eleventh year, the next
edition of the Prime Logistics full update will be published in the
spring and includes:
– In-depth coverage of 26 key UK logistics markets
– A complete review of recent market activity – Rental growth
forecasts for each market – A comparison of the distribution
prospects
for all markets
INDUSTRIAL & LOGISTICS CONTACTS
Myles Wilcox-Smith Tel. +44 (0)121 616 4811
mwilcox-smith@geraldeve.com
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rgatehouse@geraldeve.com
North West Jason Print Tel. +44 (0)161 830 7095
jprint@geraldeve.com
London Mark Trowell Tel. +44 (0)20 7333 6323
mtrowell@geraldeve.com
David Moule Tel. +44 (0)20 7333 6231 dmoule@geraldeve.com
Scotland Sven Macaulay Tel. +44 (0)141 227 2364
smacaulay@geraldeve.com
Investment
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Research
Steve Sharman Tel. +44 (0)20 7333 6271 ssharman@geraldeve.com
Sally Bruer Tel. +44 (0)20 7333 6288 sbruer@geraldeve.com
Prime Logistics is the definitive guide to the UK’s distribution
property market. Dealing with logistics units of 50,000 sq ft and
above, this research report gives detailed analysis and statistics
for 26 key distribution areas – from take-up, stock and development
statistics to drivers of occupier demand, growth forecasts and
regional outlooks. All previous editions can be downloaded from our
website.
Prime Logistics is a short summary and is not intended to be
definitive advice. No responsibility can be accepted for loss or
damage caused by any reliance on it.
The reproduction of the whole or part of this publication is
strictly prohibited without permission from Gerald Eve LLP.
© Gerald Eve LLP 2016. All rights reserved.
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GERALD EVE’S UK OFFICE NETWORK
GERALD EVE IN THE MARKET Gerald Eve is well-established in the
logistics property market and covers the full range of property
services, from national occupational and investment agency through
to lease consultancy and valuation. Our specialists have been
involved in several high profile transactions during the quarter.
Please contact them directly for more information.
Tom Blakely advised Prologis on rent reviews at DC3 Prologis Park,
Midpoint (237,648 sq ft) let to Biffa, and, DC4 Bromford Gate in
Birmingham (86,207 sq ft), let to Claire’s. Mobile +44 (0)7768
617334
Myles Wilcox-Smith advised Roxhill/SEGRO on the pre-let of a
269,000 sq ft unit on plot 5 at Rugby Gateway to Hermes
Parcelnet.
Mobile +44 (0)7880 788345
George Underwood advised Savills IM on the £14 million sale of the
Howdens and Croda units at Capitol Park near Doncaster, having
previously advised on the acquisition of them for £10.25m in Q2
2014.
Mobile +44 (0)7545 868249