The Boom of Logistics

Logistics real estate is a massively growing sector. The UK may be experiencing a period of political uncertainty, but the logistics market is proving resilient and liquidity remains.

Savills reported that investment volumes for distribution warehouses reached £3.55bn in 2018, with the three-year average reaching a new height of £3.32bn. In London and the South East specifically, take-up levels increased by 33% in 2018 reaching 6.35m sq. ft, the highest amount of activity in 4 years.

In the North West, the positive story continues with take-up reaching 4.58 sq. ft in 2018, a 63% increase from 2017 and a 26% increase in the long-term average. The average deal size was 198,952 sq. ft, evidencing increased occupier demand for larger units.

The current warehouse volume in the UK is not meeting the increasing demand. This has led to a noteworthy number of build-to-suit units being developed across the country, again showing the strength of the market with occupiers committing to more permanent leases.

  • Four build-to-suit deals at Segro Logistics Park East Midlands Gateway totalling over 2m sq ft of space.
  • Gazeley announced the build-to-suit development for B&Q at G. Park in Swindon in H1 2018.
  • Prologis completed the development of Hermes Parcelnet Ltd’s purpose-built parcel distribution depot at Prologis Park Hemel Hampstead in the H2 2018.

Online shopping increasing year-on-year has resulted in high demand for modern warehouse space and a competitive market for retailers, manufacturers and others. The East Midlands has become a popular area with major motorways and rail connections making it the perfect location to transport goods across the country. In addition, East Midlands airport has grown their cargo offering significantly, making the location appealing to international brands. Retailers flocking there include Amazon, the retailer signed a 500,000 sq ft purpose-built deal at East Midlands Gateway along with Shop Direct, taking 850,000 sq. ft for a new distribution and returns centre and food manufacturer Nestle, creating a 638,000 sq. ft new digital warehouse.

Next day or even same day delivery is becoming expected by consumers. This has created demand for retailers to have logistic centres spread across the UK with some businesses looking for smaller facilities close to major metropolitan areas to ensure they can deliver quick lead times. This has resulted in brands changing or developing their logistics portfolio, an example being Marks & Spencer, they have moved their Neasden site in North West London, north of the M25: “M&S is changing and we are transforming our stores and supply chain to better serve our customers”, said Gordon Mowat, Director of Clothing & Home Supply Chain & Logistics in a statement.

It is clear logistics is a highly lucrative market to be investing in. There is an abundance of activity in the sector with high volumes of speculative developments, numerous acquisitions in the pipeline and a growing demand for space, all of which are expected to continue to rise despite the wider economic headwinds.

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