Gerald Eve Prime Logistics

PRIME LOGISTICS

The deﬁnitive guide to the UK’s distribution property market Q1 2017 Bulletin

International Property Consultants PRIME LOGISTICS The deﬁnitive guide to the UK’s distribution property market 2016 2015 2014 2013 2012 2011 2010 2009 Q1 2017

10%

5% 15%

0% 20%

TAKE-UP FALLS 23% ON A SLOW START TO THE YEAR AVAILABILITY FALLS TO RECORD-BREAKING Q4 FOR PRE-LETTING ACTIVITY LOWEST LEVEL ON RECORD Take-up in Q1 2017 fell to 10.7 million sq ft, Given the occupancy requirements of The strong level of take-up over the last down 23% on Q4 2016. Such a drop was manufacturers, it was the take-up of few quarters, combined with activity on to be expected given that Q4 2016 was the secondhand and refurbished up-and-built secondhand stock in Q1, has further largest single quarter on record for occupier product which drove activity during Q1. taken its toll on the overall availability of take-up and the first quarter of the year is 52% of all space taken-up was secondhand, logistics space in the UK. Even including typically one of the less active. Whilst the Q1 the highest proportion since Q4 2015, the speculative space that is on the market 2017 volume is the same as the five year and the refurbishment activity of landlords or under construction, the overall volume of average quarterly figure, the composition of undertaken during 2016 was vindicated space fell to the lowest we have recorded demand was notably different. given the swift letting of several refurbished since our records began in 2006, at a rate buildings during Q1. of 5.9%. Retailers and wholesalers, usually the most active occupier sector, were not as The average size of building transacted The slowdown in speculative development acquisitive as usual during Q1 and only in Q1 also decreased to 144,440 sq ft we have seen over the last few quarters is accounted for 15% of quarterly activity. from 170,868 sq ft, but remains in excess another reason for this decline. We still have Notable by its absence was Amazon, with of the ten year average deal size of not seen the return of secondhand space to retail and wholesale sector demand driven 137,398 sq ft, given the large scale the market which could be expected in times by discount retailers such as Lidl and Aldi. development sales which were agreed in of strong pre-letting activity and whilst we Q1 2017. These include Neovia Logistics have seen a handful of larger secondhand It was the manufacturing sector which was the 1.2 million sq ft warehouse in Desford in buildings come to the market, it has not most dominant occupier sector, accounting the Northern East Midlands and Lidl’s been sufficient to meet demand. for 36% of all Q1 activity. The letting by 624,000 sq ft unit at Eurocentral in the Jaguar Land Rover of the 555,000 sq ft Scottish Central Belt, both of which received There is a very limited choice of affordable Tyrefort Dunlop warehouse in Minworth was planning permission during the quarter. space on the market and it is those the largest transaction in the manufacturing occupiers who are in urgent need of sector although Molson Coors Brewing also The largest pre-let agreed during the quarter accomodation that are feeling the brunt of completed a sale and leaseback of their was Gardman’s pre-let of 414,000 sq ft at this supply shortage. Based on five year 485,000 sq ft warehouse in Burton on Trent Prologis’s Apex Park in Daventry which will average levels of demand there is currently and Accrol Paper let the 370,000 sq ft M58 complete the third phase of the park. just over 1 year’s supply of all qualities of warehouse in Skelmersdale. space on the market, the lowest on record.

Quarterly take-up by occupier sector Q1 2017 take-up by event type Quarterly years of supply based on ﬁve year Source: Gerald Eve Source: Gerald Eve average take-up Source: Gerald Eve

Million sq ft 9% Years of supply 14 3.0 20% Pre-let Sale 12 2.5

10 25% 2.0 Development 8 Sale 1.5 6 1.0 4

2 0.5

0 46% 0 Letting Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015 Q3 2015 Q1 2016 Q3 2016 Q1 2017 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017

Services Manufacturing Retail and Wholesale Logistics Other/unknown www.geraldeve.com First Quarter 2017

Q1 2017 KEY INVESTMENT TRANSACTIONS

Property Purchaser Vendor Price (£m) Size (sq ft) Yield (%) Tenant

21 assets (87% at APP JV SEGRO Aviva Investors 365 3,767,369 3.60% Heathrow Airport)

Portfolio Aviva Investors SEGRO 149 753,474 3.70% 4 London assets

Cara Portfolio Clearbell Capital Aviva Investors 31.75 1,159,962 8.50% 14 assets

Apex Portfolio (part) Legal & General UK PIF II Columbia Threadneedle 31.5 - 7.50% 3 Booker assets

Signia Park, Didcot Tritax Big Box REIT Clowes Developments UK 29.24 242,059 5.82% Hachette UK

Kiln Lane Ind Estate, Immingham WarbaBank (Kuwait) Oxenwood Real Estate 24.575 79,997 5.50% Kia Motors 0 1 2 3 4 5 6 7 8 9 10 Centrum West, Burton upon Trent UK CPT Goodman International 22.2 258,366 5.80% Palletforce

Crosspoint Business Park, Coventry F&C UK Property Fund Commercial Management 15 146,701 5.39% TNT UK Ltd

Sources: Gerald Eve, Property Data

SPECULATIVE DEVELOPMENT 2017 EXPECTED TO BE A WEAK YEAR INCREASED VOLUME OF SLOWDOWN CONTINUES FOR SPECULATIVE COMPLETIONS CAPITAL TARGETING LOGISTICS 1 million sq ft of space started construction At 6.2 million sq ft (accounted for by 31 There continues to be a significant weight speculatively during Q1, a 37% reduction on buildings), the total volume of development of money targeting prime logistics assets, Q4. This is a continuation in the slowdown we completions in Q1 showed a 12% decrease both foreign and domestic, and pricing have seen post-EU referendum, as developers on Q4 2016. The proportion of speculative remains keen. We did see some deals and funds continue to assess occupier interest space completing decreased from 31% of transact at sharp yields however, by and in schemes already underway or wait for all completions to only 10%. Geographically, large, prime yields were flat during Q1 occupier commitment. The average size of we saw more speculative space complete 2017, having recovered all lost ground speculative development start also fell from in London and the South East and recorded since the EU referendum. 153,988 sq ft to 80,945 sq ft in Q1, although a weighting towards the West Midlands and this is more reflective of the location of the Yorkshire markets for purpose-builds. Investors remain compelled by the schemes which got underway, which were occupational fundamentals underpinning focused in London and the South East. Despite some large completions from the the sector and view the rental growth likes of Aldi, Howdens and TK Maxx, the prospects as a good hedge against rising The amount of available speculatively average size of building completing during inflation. As a result we have seen a lot of developed space has shown incremental the quarter decreased to 198,727 sq ft in positioning by some of the largest investors rises since Q4 2015 and there is now Q1 2017, down from 211,223 sq ft in Q4. in the market to raise more funds. Tritax have around 6.5 million sq ft of such space on secured a £90m loan and are undertaking the market. Whilst rising, we have seen Based on those units currently under a £200m share issue, PBB has provided a over 15 million sq ft of speculative space construction, less than half the volume £147 milllion facility to Prologis UK Logistics completing development since 2015, much of speculative development completions Venture (a JV with CBREGI) and Blackstone of which has been absorbed by occupiers. are expected to complete in 2017 has created a JV with Delin Capital. Void rates on such space remain low, at just compared to 2016. Our forecasts show over 4 months on the space that has let, that all development completions will be Investors have also looked at rights issuance and historically, particularly when compared down 26% and that speculative space and listing options during the quarter. Logicor, to 2009, the amount of speculative space will only account for 23% of the total. owned by Blackstone, is seeking to either list on the market is low. The total volume of These figures could change given the on the UK Stock Exchange or sell directly, development starts, including purpose- short build period of warehouses. and SEGRO has announced a one for five builds, only decreased by 3% in Q1. fully underwritten rights issue to raise around £573 million. LondonMetric too has raised £95.5 million via a share placing. So limited Quarterly availability and rolling four-quarter Annual development completions by type is the supply of investment grade stock that development completions of speculatively and 2017 forecast investors are looking at more indirect ways to developed space Source: Gerald Eve capitalise on the strength of the market. Source: Gerald Eve

Million sq ft Million sq ft Million sq ft The supply and demand imbalance 30 18 14 continues to place upward pressure on 16 25 12 rents. This is likely to be strongest in those 14 10 locations where we have not to date seen 20 12 a high level of speculative development. 10 8 15 We are forecasting an average across all 8 6 10 6 our regions of 2% growth in prime rents 4 4 for the next ﬁve years, with those markets 5 2 2 with oven-ready land and strong signals for 0 0 0 speculative development where we expect 2 4 5 2013 2014 2015 2016 2017(f) rents to rise the most sharply. Q1 2008 Q1 2009 Q1 2010 Q1 2011 Q1 2013 Q1 2016 Q1 2017 Q1 201 Q1 201 Q1 201 Availability of speculatively built space Purpose-built Rolling four quarter speculative development Speculative completions (RHS) 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.

John Rodgers Jason Print Gerald Eve advised Goldman Sachs is marketing L175 in Liverpool Gerald Eve celebrated on its disposal of Boreham International Business Park, on a double success at the Interchange in Chelmsford, behalf of Peel Logistics, which 2017 Property Awards this a distribution park anchored is attracting occupier interest quarter, walking away with by Royal Mail. from automotive manufacturers the accolades for Investment given its proximity to Jaguar Team of the Year and Land Rover’s Halewood site. Professional Team of the Year.

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INDUSTRIAL & LOGISTICS CONTACTS OFFICES

Agency Investment London (West End) Leeds John Rodgers 72 Welbeck Street 1 York Place Midlands Tel. +44 (0)20 3486 3467 London W1G 0AY Leeds LS1 2DR Richard Ludlow [email protected] Tel. +44 (0)20 7493 3338 Tel. +44 (0)113 244 0708 Tel. +44 (0)121 616 4802 [email protected] Nick Ogden London (City) Manchester Tel. +44 (0)20 3486 3469 46 Bow Lane No1 Marsden Street Myles Wilcox-Smith [email protected] London EC4M 9DL Manchester M2 1HW Tel. +44 (0)121 616 4811 Tel. +44 (0)20 7489 8900 Tel. +44 (0)161 830 7070 [email protected] Lease Consultancy John Upton-Prowse Birmingham Milton Keynes London Tel. +44 (0)20 7333 6248 Bank House, Avebury House Mark Trowell [email protected] 8 Cherry Street 201-249 Avebury Boulevard Tel. +44 (0)20 7333 6323 Birmingham B2 5AL Milton Keynes MK9 1AU [email protected] Ian Gascoigne Tel. +44 (0)121 616 4800 Tel. +44 (0)1908 685950 Tel. +44 (0)121 616 4812 David Moule [email protected] Cardiff West Malling Tel. +44 (0)20 7333 6231 32 Windsor Place 35 Kings Hill Avenue [email protected] Chris Long Cardiff CF10 3BZ West Malling Tel. +44 (0)20 7333 6444 Tel. +44 (0)29 2038 8044 Kent ME19 4DN North West [email protected] Tel. +44 (0)1732 229423 Jason Print Glasgow Tel. +44 (0)161 830 7095 Rating 140 West George Street [email protected] Keith Norman Glasgow G2 2HG Tel. +44 (0)20 7333 6346 Tel. +44 (0)141 221 6397 South West & Wales [email protected] Richard Gatehouse Tel. +44 (0)29 2038 1863 Valuation [email protected] Richard Glenwright Tel. +44 (0)20 7333 6342 Scotland [email protected] Sven Macaulay Tel. +44 (0)141 227 2364 Research [email protected] Steve Sharman Tel. +44 (0)20 7333 6271 [email protected]

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 2017. All rights reserved.