The Warehouse Property Market And Skyscraper Sheds

Warehouse Property

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E-commerce

The rapid growth of the e-commerce sector is continuing to create wholesale changes in the way retailers tackle both the sourcing of warehouse space and the financing of their distribution centres, whether owned or leased.

Britain has the highest demand in Europe for e-commerce facilities with at least 15% of sales now made online. According to most forecasts, this is expected to rise to at least 20% by 2020. More than a third of all industrial space deals made in the first half of 2016 involved the on-line retail, parcel delivery and food sectors.



George Underwood, a partner at Gerald Eve, international property consultants, recently told FT that “online retail is driving demand for high-quality space to ever-higher levels and, put simply, there’s not enough supply to go around” .

Super-sized warehouses

Shortage of land and rising costs mean that developers will have to find more floor space on a site by building upwards.. Retailers need to operate distribution centres closer to people’s homes and businesses to satisfy customer demands. Millions of square feet of additional storage space will be required in the next few years to fulfil requirements.

What’s happening now?

Space

According to Colliers International, a leading real estate company, 6 million sq ft of speculative units across the UK are under construction, mostly in the “big shed” category, especially of properties >500 000 sq ft. Food retailers like Aldi, Lidl are continuing to be candidates for properties of this size. Amazon is aggressively rolling out their Prime Now and Fresh service offerings which demand bigger warehouses of up to 1m sq ft.

Current supply by region and grade

Warehouse Property Market

Source: Savills Research 2016

 

Current supply information published by Savills shows that speculative developments are a feature of the landscape in the South East, excluding inside the M25, and in the East Midlands (sometimes known as the golden triangle) but little is happening elsewhere in this category. .

Warehouse design

According to research concluded in 2015 by BNP Paribas Group, major warehouse owners and occupiers have these key requirements over and above their basic necessities of cost containment, suitable warehouse layout and the ideal location. They want:

  • Sustainability. 86% of respondents to their survey stated that they want a greener warehouse using new forms of energy such as solar, wind, biomass and energy extracted from waste. Many companies are prepared to pay a premium for it if it saves on operational costs.
  • Cross docking facilities. 87% stated that this model of warehousing was important in their future plans.
  • Height. 83% of respondents felt that eaves heights in new units would have to reach a minimum of 10m and there should be high bay facilities.

Investors and landlords

Most investors in “big sheds” are British institutions such as Legal and General or specialist logistics and property investment companies such as Logicor, Tritax Big Box and LondonMetric . These companies are homing in on the trend by buying up tracts of land for large warehouses which they build and lease to operators such as John Lewis, Ocado and B&Q. .

Overseas buyers such as Norway’s sovereign wealth fund and Blackstone, a private-equity house, have been buying up storage warehouses across Europe for the past few years. Blackstone owns 51 large warehouses in Britain.

More foreign investors from the Far East are entering the market as the net yields are looking attractive at around 4.5%. p.a. The Savills prime yield for distribution warehouses in 2016 to date remains at 4.75%. Colliers International are telling us that prime industrial rents for big and small sheds increased by an average of 4% and 6% respectively in the last year.

Demand and availability

According to Savills, as at July 2016, the supply of existing units over 100,000 sq ft across the UK currently stands at 29 million sq ft, across 170 separate units, which is a fall of 14% since the start of the year. Of the units currently on the market they classify 64% as grade B and C, and just 36% as grade A. The West Midlands has the lowest total supply of the core logistics regions at just 2.4m sq ft, North West has the highest supply of stock but much of it is C grade.

2016 so far has seen strong levels of take-up for units over 500,000 sq ft (five this year in total, compared to a yearly average of seven) and they are expected to remain robust. It is likely that speculative development will slow, but take-up levels are not expected to drop significantly.

Outlook

The recent slowdown, i.e. drop in investment, since the referendum on the UK’s membership of the EU has not been as severe as expected. This is partly due to the activities of the overseas investors in the market but also the growth of e-commerce and the ‘’Amazon effect”. Last year, Amazon rented more than 5 per cent of all new logistics space in the UK, according to estimates from Gerald Eve.

The impact on the economy of the Brexit, when it eventually happens is an unknown, but the demand for A grade space for e-commerce operators in high income areas is unlikely to slow down.

This article was written and supplied on behalf of Go Supply Chain, experts in logistics and supply chain management.

 

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The Warehouse Property Market And Skyscraper Sheds
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The Savills prime yield for distribution warehouses in 2016 to date remains at 4.75%. Of the units currently on the market they classify 64% as grade B and C, and just 36% as grade A.
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The Warehouse Property Market And Skyscraper Sheds 3.14 (62.86%) 7 votes

October 10, 2016



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