The recent Savills annual Big Shed Breakfast gave an overview of the occupational and investment markets, and was followed by a panel discussion.
Kevin Ashfield, IM Properties, Chris Nicoll, F&C Reit, Jason Jay, Wincanton, and Adam Petrillo, Savills Studley.
- The logistics market within the UK in 2014 can only be described as exceptional. Take-up for units over 100,000 sq ft has increased 50% since 2013, and currently stands at 28.3 million sq ft. In the most part, this has been driven by occupiers in the retail sector adapting their supply chains for the omni-channel retail world. Amazon, Next and Waitrose have all taken units approaching 1 million sq ft.
- 16 million sq ft has been for second hand units and 25% of floor space transacted has been for units over 500,000 sq ft. Growth in this market has been driven by the chronic lack of new supply as occupiers look to adapt and optimise their supply chains.
- This means that the average deal size has increased to 231,000 sq ft which could have implications for future land allocations for logistics use.
- Over 2014 supply of all grade of stock has fallen by over 15 million sq ft, a 40% decrease, with limited new supply coming onto the market and increased occupier demand this has the potential to increase rents in the logistics sector for the first time in a generation.
- Supply of modern Grade A facilities have fallen from 17 million sq ft to 11 million sq ft.
- Investment in distribution warehouses is expected to break records in 2014 , with over £3.5 billion transacted.
- Though more speculative development is starting to come through, it's unlikely to meet the demands of the market and 2015 will see a strong performance in the Build to Suit category.
- Supply imbalance is having an impact on occupiers as they need flexibility in building location and lease length.
- Retail disruption is having a profound impact on the industry. It's being felt at the larger and smaller ends of the market, with smaller units being required to service 'the last mile' deliveries from parcel operators.
- The emergence of grocery discounters means larger yards and more dock leveller doors are required.
- 2015 is not expected to see the same volume of investment transactions due to potential risks such as the 2015 general election. However, given the pricing relativities compared with other asset classes, the panel concluded there were no strong risks to pricing.