Industrial & Logistics Viewpoint
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INDUSTRIAL & LOGISTICS VIEWPOINT 2020 UK CONTENTS FOREWORD 4 NATIONAL MARKET 6 LONDON & THE SOUTH EAST 8 WEST LONDON 10 SOUTH WEST 12 MIDLANDS 14 NORTH WEST 16 YORKSHIRE & THE NORTH EAST 18 SCOTLAND 20 NORTHERN IRELAND 22 CAPITAL MARKETS 24 2 3 We are pleased to launch our new Industrial and Logistics Viewpoint 2020, which is designed to give you an overview of national and regional activity. Despite the political and economic uncertainty that many businesses in the UK faced in 2019, the Industrial and Logistics sector has remained resilient. Some of the key findings of this Viewpoint include: • Demand for industrial and logistics space in 2019 remained strong with take-up reaching in excess of 30m sq ft for the year, exceeding the 10-year annual average by 17%, but 14% below the record breaking 2018 • The industrial sector out-performed all other property asset classes in 2019, partly driven by very strong rental growth in London and key South East locations • Rental growth is expected to moderate in 2020, although logistics units located in heavily populated areas will reach above average returns • At the beginning of the year we were expecting 2020 to be a record year in terms of demand. However, material downside risks associated with the Covid-19 virus may limit the occupational upside. Should the virus run its course in the first half of 2020, we may expect to see a busy second half as occupiers regroup and press ahead with urgent projects For an informal chat, please do not hesitate to get in touch with either myself or one of the team. I look forward to meeting you personally. LEN ROSSO Head of Industrial & Logistics +44 7831 436 096 [email protected] ANDREA FERRANTI Head of Industrial & Logistics Research +44 7522 357 441 [email protected] 4 5 NATIONAL MARKET Economic outlook Supply chain challenges The heightened economic volatility that we have seen in GDP growth in 2019 is expected to reach 1.3% (Oxford The success of a retailer’s online strategy is closely linked robotics and the implementation of the 5G network the wake of the Government’s Brexit negotiations and Economics), partly impacted by trade protectionism and to the distribution sector and supply side functions. This will allow greater control over stock management and planning in 2019 has placed an unprecedented strain an associated rise in global uncertainty which caused explains the strong levels of take-up nationally for both turnaround times. Consequently, the use of ‘big data’ and on UK supply chains. There are concerns that economic a deterioration in business investment. The economic large distribution warehouses and urban logistics space as increased digitisation will be the next battleground for weakness could impact consumer spending. While the performance in 2020 is forecast to moderate to 1%, companies seek to cope with increasing demand. supply chain operators and retailers as they look to exploit latest ONS data shows a very strong labour market with before picking up to 1.9% in 2021. synergies within their global business. The continuous Colliers predicts that the next 10 years will be an unemployment rate of 3.8%, Q4 2019 household growth of ecommerce, coupled with moderate economic It is worth mentioning that the impact of Covid-19, transformational in the way that occupiers use their spending saw a negligible 0.1% q/q rise. Annual wage growth prospects, will force retailers to continue to develop commonly called Coronavirus, is not yet visible in the industrial space and integrate technology. The use of growth in December 2019 topped 2.9% and with a their omnichannel strategy more efficiently. official data, but given China’s position at the centre of sluggish inflation at about 1.4%, this should support many global supply chains, a temporary negative impact consumer spending in 2020. of some scale is likely. Take-up by type of unit - Strong fundamentals continue to drive the sector forward 2nd hand New D&B % Share Spec % Share Market overview 40 60 Strong market fundamentals are expected to drive Supply has increased and now stands at around 36m sq 35 the industrial sector forward as occupiers’ focus on ft, but considering that 9.0m sq ft of new-build space was 50 30 streamlining supply chains continues unabated. Based on completed in 2019, the market remains well-balanced in current market dynamics, total space under offer, and the terms of supply and demand, with developers seemingly 25 40 wider consumer and technological landscape, we were unfazed by the current economic jitters. In this respect, our expecting 2020 to be a record year in terms of demand. records show that 6.6m sq ft is either under construction 20 30 However, material downside risks associated with the as of February 2020, or recently completed and available 15 Covid-19 virus may limit the occupational upside over the to let. (%) Share Take-up sq ft (m) Take-up first half of the year. 20 In terms of MSCI performance measurements, the 10 2019 was a very challenging year for business planning. industrial sector out-performed all other property asset 5 10 Political uncertainty and exchange rate volatility made it classes, partly driven by very strong rental growth in extremely difficult for businesses to commit to large capital London and key South East locations. The sector has 0 expenditures. Nevertheless, the sector has been supported enjoyed strong rental growth for several years now 2011 2012 2013 2014 2015 2016 2017 2018 2019 0 by strong occupational demand driven by occupier needs to and consequently, we expect this to moderate in 2020, Note: units 100,000+sq ft | Source: Colliers International future-proof supply chain operations. In this regard, take-up although logistics units located in densely populated areas figures for large distribution warehouses (greater than will reach above average returns. National Supply - The market remains well-balanced with supply in line with the five-year average 100,000 sq ft) topped 30m sq ft, in line with the Supply 5yr avg (2014-’18) five-year average. 100 90 The view from the expert 80 Now that the political impasse around Brexit has been We should expect to see consolidation in the UK based 70 resolved following the December 2019 election, the sector freight forwarding and 3PL sectors, particularly 60 can start to move forward. The big challenge facing the amongst SMEs. 50 logistics industry remains the low margins with retailers and consumers still expecting more for less. This is not 40 Supply sq ft (m) Supply sustainable in the long-term. 30 CHRIS EVANS The conundrum of low margins versus large investments 20 Supply Chain Specialist required for new technologies, mechanisation and +44 77 99 58 72 30 10 automation will continue to define who will be able to [email protected] future-proof their supply chain. 0 2009 2014 2015 2016 2017 2018 2019 Source: Colliers International 6 7 TRACK RECORD LONDON & HIGHLIGHTS THE SOUTH EAST Occupier market The London and South East market had a strong year in 2019 with take-up for distribution warehouses larger than 100,000 sq ft reaching 6.1m sq ft. This is 9% up on 2018. When analysed within the national context, take-up in the wider South East market (including London) accounted for a national share of 21%, the second largest TRITAX SYMMETRY share after the Midlands (45%). Leasehold disposal Symmetry Park, Biggleswade A recurring theme over the past few years has been the lack of sites and limited choice for occupiers to fulfil their requirements and based on the latest study, there is less than 10 months’ worth of supply in the wider London and South East market. Consequently, both London and the South East out-performed other UK locations in terms of rental growth, with the latest MSCI quarterly data for Q4 2019 showing an annualised rental growth of 3.9% in both markets. While there has been slight uptick in the development pipeline, availability still remains For more information very tight and occupiers, in some instances, are exploring a wider range of locations please contact: due to several factors, such as rental growth, labour availability and most importantly, unit specifications. Emerging locations along the A1(M), such as Biggleswade, AGENCY and M40, like Banbury and Bicester, have attracted interest from occupiers and developers. Amongst some of the most notable deals, Colliers advised Tritax Prologis William Bellman Symmetry on the pre-let of a new 661,000 sq ft purpose-built RDC at Symmetry Park Site acquisition +44 7881 553 904 Biggleswade. Upon practical completion, targeted for Q1 2021, Co-op will take a new [email protected] Former Brooklands Bakery’s site, Weybridge 20-year lease. Furthermore, the electric vehicles and components manufacturer, Arrival Automotive Ltd, took Unit 1A, Link 9 in Bicester (120,599 sq ft). The unit was James Haestier let in December 2019, around eight months after practical completion. Key occupational transactions +44 7818 038 009 [email protected] With regards to activity inside the M25, the capital continues to attract a wide range of occupiers. Some of the key deals include Amazon taking 180,000 sq ft at Wembley180, Address/Site Size (sq ft) Tenant Landlord Notes whilst the food wholesaler, Wanis Ltd, agreed terms on a freehold turnkey distribution warehouse (140,000 sq ft) at SEGRO Park Rainham and Beavertown Brewery signed Akhtar Alibhai Symmetry Park, 20-year lease +44 7909 684 801 a pre-let of a 126,595 sq ft design and build unit at Enfield Distribution Park. 661,200 Co-op Food Tritax Symmetry Biggleswade Design and build [email protected] Looking forward, we expect this strong demand, partially driven by the growth of ecommerce, to continue to put further pressure on rents.