Demand for UK logistics space in the first quarter of 2018 was the highest in three years, according to new research from Cushman & Wakefield.
Total industrial take-up in the first three months climbed to 10.2 million ft2 (950,000 m2), outpacing the same quarter last year by 60%. The purpose-built share of the market was especially strong, indicating that many occupiers are looking beyond Brexit and taking longer-term commitments, the advisory firm said.
'High levels of demand during the first quarter of this year point to continued robust performance for the remainder of 2018 for the UK logistics sector,' commented Bruno Berretta, UK Logistics & Industrial research & insight, Cushman & Wakefield. 'While Brexit and pricing concerns are intensifying, strong market fundamentals support an optimistic outlook.'
In the first quarter, purpose-built deals accounted for 35% of the total number of transactions and 67% of total take-up (by ft2). Retailers (including eRetailers) took the lead over manufacturers during the first quarter, accounting for 57% of take-up.
Evolving occupiers
UK omni-retailers have been busy ensuring their portfolios support the changing nature of their businesses as online sales account for an increasing share of total turnover, the report said. IT citED M&S’s decision to close its Neasden site in North-West London to open a new 495,000 ft2 distribution centre north of the M25 as an example of this type of restructuring.
The research also shows that take-up by pure online players is on the rise, accounting for 24% of total retailer take-up in the first quarter. After a pause in its network expansion at the end of last year, Amazon resumed its growth plans to sign a 500,000 ft2 purpose-built facility at East Midlands Gateway Park.
With Shop Direct taking another 550,000 ft2, East Midlands Gateway ended the quarter accounting for 78% of total pure player take-up.
Regional trends
Regionally, the Midlands and South-East accounted for the lion’s share of Q1 take-up of 79%. Meanwhile, other regions had their fair share of large deals including Premier Farnell (360,000 ft2) in Yorkshire and B&Q (375,000 ft2) in the South West.
'Online retail will remain the primary driver of growth in demand for logistics space including larger fulfilment centres and last-mile depots, allowing retailers to serve more efficiently an expanding and more demanding customer base,' said Gordon Reynolds, partner, logistics & industrial agency, Cushman & Wakefield.
Prime rents grew at record levels during 2017, according to the report. Nearly a third of the 73 submarkets covered by Cushman & Wakefield, registered double-digit increases in prime rents during the calendar year. Virtually flat prime rental growth during the first quarter suggests that last year’s rental growth performance is unlikely to be replicated during 2018.
Longer-term, supply constraints combined with a diverse occupier base that includes a growing number of online retailers, point to the strongest rental growth prospects in the South-East, particularly for urban depots.
