Occupier take-up of Grade A big boxes (of 100,000 sq ft and over) in 2017 was 36% down on 2016 and 11% down on the historic ten-year annual average (2008-2017).
Despite a drop in take-up, demand was robust in 2017. Relatively weak take-up statistics are bolstered by the fact that that there is currently circa 7 million sq ft of space in solicitors’ hands that will fall into take-up in 2018.
• Retailers were the most active source of demand in 2017 accounting for 37% of take-up.
• Grade A availability at the end of 2017 was 3% lower than mid-2017 but 21% higher than the end of 2016.
• At the end of 2017 the national vacancy rate for modern logistics stock stood at 6%.
• Nationally, JLL forecasts distribution rents to grow by 4.3% this year.
• The investment market remains strong with the logistics sector forecast to outperform both the offices and retail markets over the next four years.
Commenting on JLL’s research, Richard Evans, Director in JLL’s Industrial & Logistics Group, said: “Despite a drop in demand during 2017, the overall level of take-up for logistics space has remained relatively robust over the last five years with an average of 18.8 million sq ft taken up per annum over this period compared with an average of 15.8 million sq ft in the preceding five years. This represents a 19% increase from 2013-2017. Of the 15.4 million sq ft of Grade A space taken up last year, 10.9 million sq ft comprised new floor space with remaining 4.5 million sq ft being good quality secondhand space.”
Regionally, JLL’s research shows that the Greater South East accounted for the largest share of total take-up in 2017, at 39% of the total transacted. This region (an aggregation of Greater London, the South East and East of England) was one of only three regions to see a rise in take-up in 2017 compared with 2016. Demand in the Greater South East was 40% higher in 2017 compared with 2016. The only other regions to record an increase last year were Wales and the North East – both of which had seen no Grade A space taken-up in 2016.
Joel Duncan, Director in JLL’s Capital Markets Group added: “Investor demand for UK logistics assets has been particularly strong over the past few years and this trend continued in 2017 when yields compressed further. JLL’s preliminary estimates of total industrial investment volumes indicate that some £10.2 billion was transacted in 2017, over double the level recorded in 2016 and marking the highest year on record where our numbers go back to 2006. These figures include multi-let estates and logistics properties, including portfolio and platform deals. Demand continues to be driven by strong market fundamentals, including generally good occupier demand, supported by the positive impact of e-commerce, low vacancy and relatively modest levels of new development. All of these have combined to deliver relatively good rental growth, which our forecasts suggest has further to run over the next few years. As a result, when stock has become available it has typically been subject to aggressive bidding, which has driven yields lower.”
Jon Sleeman, Director in JLL’s Industrial and Logistics Research concluded: “Overall, the macro-economic outlook is likely to be quite challenging for corporate occupiers in 2018. But JLL’s prediction is that overall demand (take-up) will be slightly higher than seen in 2017 partly due to a healthy pipeline of deals which we expect to conclude in the first quarter of the year. In addition, we continue to monitor a high level of active requirements in the market which should support take-up over the second half of the year.”