Prime Logistics

PRIME LOGISTICS

The definitive guide to the UK’s distribution property market Q3 2018 Bulletin

International Property Consultants PRIME LOGISTICS The definitive guide to the UK’s distribution property market

Take-up uilding size vailability ra b tak K a te ge en U ra - e u v p A 11.3 165,332 6.0% MILLION SQ FT SQ FT

Q3 2018 2018 Q3 2 018

OCCUPIER MARKET 2018 TAKE-UP VOLUMES SUPPLY REMAINS LOW, MOMENTUM CONTINUES SET TO SURPASS 2017 BUT QUALITY IMPROVES Despite it being the usually-quieter summer Since the start of the year, we have The overall supply of logistics space remains period, the momentum from the first half recorded 37.5 million sq ft of occupational low and the availability rate at the end of of 2018 continued, and we recorded 11.3 take-up, which is an 18% increase on the Q3 was 6.0%. Almost half of the Gerald million sq ft of take-up in Q3 2018. While same period last year. The level of take-up Eve regions have shown a decrease in this is 16% down on Q2, this is more a recorded so far in 2018 is now at 90% of availability in Q3, with Gloucestershire & reflection of the strength of the occupier the total take-up recorded for 2017, and, Worcestershire, Kent, London South and market in the first half of 2018, than any given the elevated levels of requirements Suffolk and Essex recording some of the slowdown in demand. Q3 take-up was in and volume of space under offer, we are lowest rates in the country. line with the 5 year quarterly average and confident that take-up will surpass the represents an 8% increase on same quarter volume recorded last year. While the overall UK availability rate has last year. been at around 6% for several quarters, the So far in 2018, the average size of building quality of the available stock has improved, Activity in the Northern East Midlands, taken-up was 165,332 sq ft, the largest with 43% of available stock now comprised where 2.3 million sq ft of take-up was average since 2010. We have seen several of new or modern space. The amount recorded (accounting for 20% of all large scale pre-lets and occupier land of secondhand space being marketed quarterly occupier activity) helped drive this purchases agreed this year by the likes of fell for the third consecutive quarter, as volume. This was in part driven by Wayfair’s Amazon, B&M Bargains and Lidl which has the natural churn of space, including that 1 million sq ft pre-let at Magna Park in significantly driven up the average size of released back to the market through retailer Lutterworth, but several other mid-sized building taken. administrations, has been absorbed through deals were also agreed in the region. letting activity. During Q3, a number of the larger deals were From a sector perspective, UK-wide activity agreed in Merseyside & Cheshire. Amazon, Developers continue to respond to the so far this year has been in stark contrast Royal Mail, Eddie Stobart and Movianto all low levels of supply and the overall level of to 2017. As opposed to manufacturers, committed to large facilities in the region. speculative development has increased this we have continued to see elevated levels The region has above average availability year. We recorded over 2.5 million sq ft of of take-up from retailers and wholesalers rates and is less land constrained than other development starting speculatively during throughout 2018, following a number of locations, so has proved an attractive option Q3. Such high levels of activity has meant large scale pre-lets and occupier land to several occupiers with large requirements. that, when allied to refurbished stock, the purchases. overall quality of the space on the market in the UK is increasing.

Quarterly take-up by main occupier sector Annual take-up and average building size Availability by quality of space, and 5 year average, Q1 2016 – Q3 2018 taken, 2007 – Q3 2018 2007 – Q3 2018 Source: Gerald Eve Source: Gerald Eve Source: Gerald Eve

Million sq ft Million sq ft 000s sq ft % 16 60 180 100

14 160 90 50 80 12 140 70 40 120 10 60 100 8 30 50 80 6 40 20 60 30 4 40 20 10 2 20 10 0 0 0 0 6 8 8 8 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Q1 201 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 201 Q3 201 Q3 201 Q1-3 2018 Retail & Wholesale Take-up (LHS) Secondhand Other or unknown (inc services) Average building size (RHS) Space under construction, or being refurbished Manufacturing New or modern up-and-built stock Logistics 5 year quarterly average www.geraldeve.com Third Quarter 2018

Q3 2018 Key investment transactions lopment sta ve rts De Property Purchaser Vendor Price (£m) Yield (%) UK Logistics Portfolio Ascendas REIT Griffen UK Logistics Fund 257.5 5.39 Project Owl portfolio Ascendas REIT Oxenwood Real Estate 207.3 5.22 Midlands Logistics Park, Corby Tritax Big Box REIT Frogmore Property Company 89.3 5.2 Ansty Park, Coventry Lime Property Fund Manse 73.4 7.7 Florida Farm, Haydock Tritax Big Box REIT Bericote Properties 68.7 4.9 MILLION SQ FT M Portfolio Blackstone Real Estate Commercial Estates Group 61.5 6.3 Lingfield Point, Darlington Frogmore RE Partners Clearbell Capital 44.0 Connex Park, Harlow TPG Real Estate Mulberry Developments 35.0 The Hub, Witton NFU Mutual Insurance IM Properties 33.9 4.63 Q3 2018 Aviation Road, Sherburn-in-Elmet Sedco Capital NFU Mutual Insurance 31.8

HIGH LEVELS OF STRENGTH OF OCCUPIER MARKET DEMAND SET TO EXCEED 2017 BUT DEVELOPMENT ACTIVITY ATTRACTS SIGNIFICANT LEVELS OF BREXIT REMAINS KEY DOWNSIDE RISK CAPITAL Development starts totalled 7.7 million sq ft during Q3. This was driven by occupiers, After a subdued second quarter, in Q3 we With over 4 million sq ft currently under offer as 67% was purpose-built developments recorded prime rental growth in 9 out of and a number of large requirements for space getting underway. Amazon’s 1.5 million sq ft our 51 centres with an overall rental growth in the market, we are optimistic that take-up unit in Darlington, B&M Bargains’ 1 million sq ft rate of 0.9%. Substantial increases were in 2018 will exceed the volume recorded in unit in Bedford and Shop Direct’s 500,000 recorded in locations such as Enfield, Slough 2017. There are several well known occupiers sq ft facility at the East Midlands Gateway and a few centres in the North East, and, with plans to continue investing heavily in scheme all commenced development in Q3. rents are now an average of £7.27 per sq ft their networks. in the UK, the highest average prime rent on Such high levels of purpose-built development record. This will continue to be of benefit to the activity is positive and is demonstrative of occupier market, but, for investors, it is worth the strong levels of occupier demand for This, combined with the well-publicised bearing in mind that we are now late in the large scale facilities in the UK. However, the underperformance of other asset classes, cycle in the UK and are forecasting limited speculative development market has also such as retail, and the inherent strength of future yield compression. Much therefore intensified this year, and on a rolling annual the occupier markets has made industrial depends on the rental growth and income basis, activity is currently fairly evenly split and logistics the asset class of choice for return prospects of the sector in what could be between occupier-led and speculative. many commercial property investors. a turbulent next few quarters. Whilst industrial property is one of the best placed commercial Speculative development activity is Pricing for industrial has reached record property sectors to be able to withstand market widespread, both geographically and levels, yet there is still a burgeoning weight uncertainty, it will not be immune to any Brexit- in terms of the type of developer. We of capital targeting the UK industrial sector. related market movements. are seeing activity range from confident There continues to be competitive tension developers who are developing very large on the investment stock that comes to Brexit and associated political uncertainty units, through to the smaller, more local the market. This in turn has fostered an are perhaps the key downside risks to the developers, who are aiming to capitalise on environment of significant yield compression, outlook for the sector, with any potential the inherent strength of the occupier market. which, when viewed against other main negative impacts likely to be industry-specific In all, we have recorded over 60 individual asset classes, highlights the structural shift and interest rate-related. However, there are speculative development starts so far in which is underway in the UK commercial several investors out there waiting for such a 2018, which is more than the number of property market. time in the market where others may hesitate, speculative development starts recorded which in turn could keep volumes and activity during the whole of 2017. levels high as investors seize their opportunity.

Whilst the medium term political and economic Rolling four quarter development starts, Monthly equivalent yields by broad asset outlook looks uncertain, the ongoing structural by type, Q4 2007 – Q3 2018 class, August 2007 – August 2018 change in the high street retail market is much Source: Gerald Eve Source: Gerald Eve clearer. We are recording an increased number of administrations, CVAs and high street store Million sq ft % 25 11 closures in the sector. Many retailers, especially

10 those hindered by a long tail of outdated 20 9 high street stores, are rationalising their high 15 street store portfolios to stay afloat. As these 8 traditional retailers modernise, it is likely 10 7 that we will see renewed investment in their 6 distribution networks in order to keep up with 5 5 the fundamental change in shopping patterns. 0 4 When combined with take-up from online retail specialists, this structural change in the retail market is likely to continue to be an important ug 2014 ug 2017 ug 2018 ug 2007 ug 2008 ug 2009 ug 2010 ug 2011 ug 2012 ug 2013 ug 2015 ug 2016 Q1 2008 Q1 2009 Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q1 2018 Q3 2018 A A A A A A A A A A A A driver of demand for logistics property. Speculative All retail Purpose-built All office Distribution warehouse 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.

David Moule Jason Print Nick Ogden advised Travis Perkins on advised Peel Logistics is advising HPPUT on the freehold disposal of Property on the letting of a the sale of KT 353, a 51,000 sq ft on Faraday Way, 176,000 sq ft speculatively 102,000 sq ft UPS parcel Orpington, securing a sale built unit in Liverpool to a delivery hub in Kentish within 6 weeks of receiving leading online bathroom Town, London. instructions. suite retailer.

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INDUSTRIAL & LOGISTICS CONTACTS OFFICES

Agency Investment London (West End) Leeds John Rodgers 72 Welbeck Street 1 York Place London Tel. +44 (0)20 3486 3467 London W1G 0AY Leeds LS1 2DR Mark Trowell [email protected] Tel. +44 (0)20 7493 3338 Tel. +44 (0)113 204 8419 Tel. +44 (0)20 7333 6323 [email protected] Nick Ogden London (City) Manchester Tel. +44 (0)20 3486 3469 46 Bow Lane No1 Marsden Street David Moule [email protected] London EC4M 9DL Manchester M2 1HW Tel. +44 (0)20 7333 6231 Tel. +44 (0)20 7489 8900 Tel. +44 (0)161 259 0450 [email protected] Lease Consultancy Chris Long Birmingham Milton Keynes Josh Pater Tel. +44 (0)20 7333 6444 Bank House, Avebury House Tel. +44 (0)20 3486 3473 [email protected] 8 Cherry Street 201-249 Avebury Boulevard [email protected] Birmingham B2 5AL Milton Keynes MK9 1AU Ian Gascoigne Tel. +44 (0)121 616 4800 Tel. +44 (0)1908 685950 Midlands Tel. +44 (0)121 616 4812 Jon Ryan-Gill [email protected] Cardiff West Malling Tel. +44 (0)121 616 4803 32 Windsor Place 35 Kings Hill Avenue [email protected] Rating Cardiff CF10 3BZ West Malling Keith Norman Tel. +44 (0)29 2038 8044 Kent ME19 4DN North West Tel. +44 (0)20 7333 6346 Tel. +44 (0)1732 229423 Jason Print [email protected] Glasgow Tel. +44 (0)161 259 0475 140 West George Street [email protected] Valuation Glasgow G2 2HG Richard Glenwright Tel. +44 (0)141 221 6397 South West & Wales Tel. +44 (0)20 7333 6342 Richard Gatehouse [email protected] Tel. +44 (0)29 2038 1863 [email protected] Research Steve Sharman Scotland Tel. +44 (0)20 7333 6271 Sven Macaulay [email protected] Tel. +44 (0)141 227 2364 [email protected] Sophie Jones Tel. +44 (0)20 3486 3784 [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 United States and European Alliances detailed analysis and statistics for 26 key distribution areas – from take-up, stock Gerald Eve has an international alliance with Lee & Associates who have and development statistics to drivers of occupier demand, growth forecasts and regional outlooks. All previous editions can be downloaded from our website. offices in 56 US and Canadian cities and a number of Europe alliance partners in 20 cities across 16 European countries. 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.

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