Britain’s “chronic” shortage of distribution facilities has sparked a 16m sq ft “Big Shed” development boom during the first half of 2015, according to research published by BNP Paribas Real Estate.
The rush to build logistics warehouses – including 7.6m sq ft of speculative schemes – is the highest development rate since 2007, claims the property adviser’s Big Shed report.
Design and build deals on units over 100,000 sq ft accounted for 8.4m sq ft of transactions between January and June, with the publication also revealing that the quantity of speculative development is now at a post-recession high.
“Over the past 18 months the dire lack of supply in the UK’s industrial and logistics markets has seen occupiers increasingly looking at design and build as the best route of acquiring the space they need,” commented BNP’s Nick Waddington.
“The willingness of developers to make a start on many speculative developments is also helping to alleviate a chronic supply shortage.”
Retailers helped drive take-up of industrial accommodation to 13.6m sq ft in the UK – up seven per cent on the same period in 2014 – with high street names accounting for 60 per cent of the total take-up figure with the likes of discounters such as Lidl, Aldi and TJ Morris acquiring a 1.7m sq ft between them.
“To enable them to keep pace with the growth of online sales, more and more retailers are reconfiguring and adapting their supply chain networks, which has a knock-on effect on the demand and supply levels of distribution property,” added Waddington.
In contrast to the levels of activity from occupiers and developers, the Big Shed report reveals that activity in the investment market has been more subdued during the first half of the year compared to last year. In all just £1.8bn was transacted – a year-on-year fall of 16 per cent.
Hugh White is head of national investment at BNP Paribas Real Estate. “Although down on an exceptional 2014, this figure must be seen in context and it should be remembered that the first six months of this year saw the second largest volume of transactions on record, up 61 per cent on the first half of 2013,” he said.
“Convinced by the buoyant occupational story in the logistics sector a number of funds are actively trying to deploy their capital into the sector, but are being left frustrated by a lack of opportunities,” White cautioned.
When opportunities do arise, they often spark aggressive bidding wars, he said. “This has seen yields nose-dive, with 10 deals completed this year at sub 5.2 per cent net initial yields, and with half of these within the M25 motorway.”
The Big Shed report reveals that Standard Life’s forward funding deal of a new 638,000 sq ft John Lewis distribution centre at a net yield of 4.2 per cent remains the market benchmark.
It also says that between April and June, the Brake Brothers distribution property in Harlow, Essex, was purchased by Tritax at a net yield of five per cent and L&G paid AXA £53.7m for the Barking Rail Freight Terminal, representing a net profit of 4.8 per cent.
“So far in 2015 the investment market for logistics property has been dominated by two types of buyers: institutional annuity buyers such as L&G and Standard Life and the specialist logistics investors such as Tritax and Blackstone,” said Hugh White. “Between them they have accounted for nearly half the investment volume during the first two quarters.”
DTZ seals Winnersh Triangle letting