PRIME LOGISTICS The definitive guide to the UK's distribution property market Q3 2020 Bulletin - Gerald Eve
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PRIME LOGISTICS The definitive guide to the UK’s distribution property market Q3 2020 Bulletin geraldeve.com
COVID POSITIVE FOR LOGISTICS DEMAND
Quarterly take-up by event type
and five year average
Source: Gerald Eve Q3 take-up hit a record-high 15.8 million sq ft in Q3 2020, an increase of 10%
on the previous record in Q2 and 29% above the 5 year quarterly average.
Million sq ft UK logistics continues to benefit from the indirect impacts of the pandemic,
18 including the accelerated switch to online retail and home delivery, and, the
16 need for supply chain security. Covid has also brought about direct demand
14 for logistics, with almost 2.5 million sq ft of space taken up by PPE and
12
pharmaceutical-related manufacturing and logistics companies in Q3. Many
10
occupier businesses positively impacted by the pandemic have been quick to
8
expand capacity, increase hiring and implement long term property solutions,
6
which has pushed the rolling annual take-up to the highest on record.
4
2
0
Q2 2019
Q3 2019
Q4 2019
Q1 2020
Q2 2020
Q3 2020
Q3 2016
Q4 2016
Q1 2017
Q2 2017
Q3 2017
Q4 2017
Q1 2018
Q2 2018
Q3 2018
Q4 2018
Q1 2019
Let or sold (up-and-built)
Pre-let or occupier land purchase
5 year average
INTERNET RETAIL AND LOGISTICS OCCUPIERS DRIVE DEMAND
Annual occupier take-up by sector
and % retail sales online
Source: Gerald Eve Amazon committed to or received planning on over 3.5 million sq ft of logistics
space in Q3. This includes a 2.3 million sq ft pre-let at Panattoni Park Swindon, the
% % largest deal of the quarter, and the letting of IM Properties’s speculatively built
100 50 Hinkley 532. However, logistics companies were the most acquisitive sector in Q3,
90 45
accounting for 47% of all activity. DHL, New Cold Logistics, Royal Mail and Clipper
80 40
Logistics all made large scale commitments. Logistics companies have reacted to
70 35
60 30
the sharp increase in online retail sales by significantly increasing their capacity
50 25 and so far in 2020, logistics occupiers and dedicated internet retailers together
40 20 account for over half of all occupier activity.
30 15
20 10
10 5
0 0
2019
Q1-Q3
2020
2010
2011
2012
2013
2014
2015
2016
2017
2018
Dedicated internet retailers
Logistics
Other occupier sectors
% retail sales online (RHS)
URGENT DEMAND FOR NEW SPACE TRIGGERS WIDESPREAD PRIME
Indexed prime rental growth RENTAL GROWTH
and UK availability rate
Source: Gerald Eve
Despite occupiers such as Laura Ashley, Sainsbury’s and TDG returning
Index, Q3 2010=100 % secondhand space, the overall UK availability rate fell for the third consecutive
130 18 quarter in Q3, to 6.5%. The availability rate for new or modern stock fell
125 16 particularly sharply to 3.6% in Q3, from 4.5% in Q2, and the volume of new
120 14 space on the market is the lowest since Q1 2019. As occupiers flocked to up-
115
110
12 and-built good quality space in Q3, prime headline rents grew by an average
105
10 2% across the country, with the sharpest increases recorded in London and
100
8 the North West. Lease terms were more complex and nuanced in Q3, and the
6
95 overall package of incentives expanded in line with longer lease lengths, which
4
90 averaged 12 years in Q3.
85 2
80 0
Q1 2016
Q3 2016
Q1 2017
Q3 2027
Q1 2018
Q3 2028
Q1 2019
Q3 2019
Q1 2020
Q3 2020
Q3 2010
Q1 2011
Q3 2011
Q1 2012
Q3 2012
Q1 2013
Q3 2013
Q1 2014
Q3 2014
Q1 2015
Q3 2015
Indexed quarterly rental growth
UK availability rate (RHS)
2 PRIME LOGISTICS BULLETIN Q3 2020
FIVE-FOLD INCREASE IN DEVELOPMENT ACTIVITY IN Q3
Space under construction by building type
Source: Gerald Eve Following the Covid-induced slowdown in development starts in Q2, we saw
a five-fold increase in development activity getting underway in Q3. In all,
Million sq ft
7.4 million sq ft started construction in Q3, of which 45% was speculative. 25
30
separate speculative buildings started construction in Q3 as developers such as
25 PLP and St Modwen instigated speculative projects across the UK. In terms of
20
purpose-built development starts, IM Properties started on the Appleby Magna
scheme for JLR and Hargreaves started on the Home Bargains unit in Doncaster.
15 At the end of Q3 2020, there was 19.7 million sq ft of space under construction
10
across the country, within 90 individual buildings. 9.6 million sq ft of this, or
49% of all activity, was being developed speculatively, with an average building
5 size of 166,080 sq ft. Regionally, there was most space under construction
0 speculatively in Merseyside & Cheshire, South and West Yorkshire and the
Northern East Midlands.
Q1 2016
Q3 2016
Q1 2017
Q3 2027
Q1 2018
Q3 2028
Q1 2019
Q3 2019
Q1 2020
Q3 2020
Q1 2006
Q3 2006
Q1 2007
Q3 2007
Q1 2008
Q3 2008
Q1 2009
Q3 2009
Q1 2010
Q3 2010
Q1 2011
Q3 2011
Q1 2012
Q3 2012
Q1 2013
Q3 2013
Q1 2014
Q3 2014
Q1 2015
Q3 2015
Purpose-built
Speculative
LACK OF SUPPLY DRIVES FURTHER YIELD COMPRESSION
Industrial investment volumes by type
and average distribution warehouse lot size
Sources: Property Data, Gerald Eve As investors rewrite their post-Covid investment strategies and increase
allocations to UK industrial, the weight of money targeted at the sector has
£ billion £ million increased significantly. Amazon-occupied buildings continue to attract investor
4.0 35 interest as L&G bought Amazon’s 2.3 million sq ft unit in Swindon for £202 million
3.5 30 / 4.3% at the end of Q3, the highest price paid for a standalone building on
3.0
25
record. This, plus a handful of large portfolio deals, pushed up the average lot size
2.5 for the fifth consecutive quarter. Whilst some Korean investors have been selling
20
2.0 out of UK logistics in Q3, investment supply is weak, and investors have had to
1.5
15 innovate to get exposure. This has been through seeking opportunities around
1.0
10 weaker covenants or longer-term redevelopment opportunities, but we have
5
also seen some investors buy assets on practical completion to bolster returns by
0.5
taking on the letting risk.
0 0
Q2 2020
Q3 2020
Q1 2018
Q2 2018
Q3 2018
Q4 2018
Q1 2019
Q2 2019
Q3 2019
Q4 2019
Q1 2020
Distribution warehouse
Standard industrial
Distribution warehouse average lot size (RHS)
OCCUPIERS BRACED FOR BREXIT, COVID LOCKDOWNS AND CHRISTMAS PEAK
Proportion of retail sales online
Source: ONS, Gerald Eve As we enter Q4 and yet another Brexit deadline, we are likely to see inventory
levels rise, supply chain resilience planning put in place and logistics companies
%
ramp-up delivery capacity for the peak Christmas period. Several companies in
35
the food and grocery sector, including Aldi, Morrisons, Asda and Deliveroo are
30 increasing their capacity for online delivery and scaling-up employment, acutely
25 aware of the elevated demand for home delivery and the potential shortage of
20 skilled drivers and warehouse workers created by Brexit. The rise in ecommerce
has been the major catalyst for recent growth, but there are new emergent
15
growth areas for the economy which could also have a positive impact on the
10 logistics sector. These include house building / home improvement, technology
5 and content creation, pharmaceutical, renewable energy and food. These in
0 turn could feed through into increased demand from home-related retailers and
manufacturers, data centres, and for strategically located cold storage units.
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
With lockdown
Previous trajectory without lockdown
Q3 2020 PRIME LOGISTICS BULLETIN 3GERALD 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.
David Moule Jon Ryan-Gill Jason Print
is marketing an 81,651 sq ft is marketing EMDC525, a advised Stoford and
cross-docked warehouse 523,404 sq ft cross-docked Oxenwood on the
with chilled, frozen and warehouse in Castle letting of the 72,740 sq ft
ambient storage at Donington with 2 MVA power speculatively built Stone
Alpha Way in Egham. supply, 18m clear internal Cross 72 in Golborne to PPE
height and close proximity to manufacturer, Globus.
East Midlands Airport.
Mobile +44 (0)7905 764910 Mobile +44 (0)7961 820757 Mobile +44 (0)7833 170680
INDUSTRIAL & LOGISTICS CONTACTS
Agency North Lease Consultancy Ben Clarke
London & South East Jason Print Chris Long Tel. +44 (0)207 333 6288
Mark Trowell Mobile +44 (0)7833 170680 Mobile +44 (0)7767 618623 bclarke@geraldeve.com
Mobile +44 (0)7768 987508 jprint@geraldeve.com clong@geraldeve.com
mtrowell@geraldeve.com Oliver Al-Rehani
South West & Wales Ian Gascoigne Mobile +44 (0)7584 112501
David Moule Richard Gatehouse Mobile +44 (0)7917 845672 oal-rehani@geraldeve.com
Mobile +44 (0)7905 764910 Mobile +44 (0)7710 171854 igascoigne@geraldeve.com
dmoule@geraldeve.com rgatehouse@geraldeve.com Property Asset Management
Rating Jennifer Cottle
Josh Pater Scotland Keith Norman Mobile +44 (0)7919 520700
Mobile +44 (0)7782 271355 Sven Macaulay Mobile +44 (0)7836 549774 jcottle@geraldeve.com
jpater@geraldeve.com Mobile +44 (0)7767 310373 knorman@geraldeve.com
smacaulay@geraldeve.com International
Midlands Valuation Hettie Cust
Jon Ryan-Gill Investment Richard Glenwright Mobile +44 (0)7920 267523
Mobile +44 (0)7961 820757 John Rodgers Mobile +44 (0)7944 585528 hcust@geraldeve.com
jryan-gill@geraldeve.com Mobile +44 (0)7810 307422 rglenwright@geraldeve.com
jrodgers@geraldeve.com
John Sambrooks Research
Mobile +44 (0)7919 624512 Nick Ogden Steve Sharman
jsambrooks@geraldeve.com Mobile +44 (0)7825 106681 Mobile +44 (0)7508 008118
nogden@geraldeve.com ssharman@geraldeve.com
OFFICES
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72 Welbeck Street 45 Church Street 140 West George Street No1 Marsden Street 35 Kings Hill Avenue
London W1G 0AY Birmingham B3 2RT Glasgow G2 2HG Manchester M2 1HW West Malling
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London EC4M 9BE Tel. +44 (0)29 2038 8044 Tel. +44 (0)113 204 8419 Milton Keynes MK9 1AU
Tel. +44 (0)20 7489 8900 Tel. +44 (0)1908 685950
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 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 2020. All rights reserved.
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