JLL today published its 2018 industrial ‘big box’ research, highlighting record take-up and strong investor demand as the industrial sector continues to outperform other commercial asset classes. Findings included:
Occupier take-up of Grade A big boxes (of 100,000sq ft and over) in 2018 totalled 22.6m sq ft marking the third highest year on record; 15% up on the historic five-year annual average.
- Retailers were the most active source of demand in 2018 accounting for 40% of take-up.
- Almost three quarters (74%) of all new floorspace taken up in 2018 was built to suit (12.6 million sq ft).
- Grade A availability at the end of 2018 was 16% up on mid-2018 and 57% higher than the end of 2017, standing at 23.6m sq ft.
- At the end of 2018 the national vacancy rate for modern logistics stock stood at 8%, compared to 6% at the end of 2017.
- Nationally, JLL forecasts distribution rents to grow on average 2.1% per annum over the next four years (2019-2022).
- The investment market remains strong with the logistics sector forecast to outperform both the offices and retail markets over the next four years. There was some £7.6bn transacted last year, which was 45% above the 10-year average of £5.6bn.
JLL’s latest research highlighted that structural change continued to shape the ‘big box’ logistics sector despite the prevailing economic uncertainty and softening consumer spending. Retailers accounted for the largest share of floorspace taken up in 2018 at 40% of the total, followed by logistics companies at 34%. E-commerce continued to drive demand for logistics floorspace, directly accounting for 27% of total Grade A take-up. This equated to 6.1 million sq ft taken up by both retailers and 3PLs acting for retailers. Of note is the diversity of e-commerce retailers taking space last year compared to Amazon’s dominance two years ago. Research suggests a much wider diversity of retailers, highlighting the changing nature of the retail market and the need for retailers to be able to fulfil their online offering. Alongside Amazon, retailers taking space last year included Pretty Little Thing, ASOS, PFS and Wayfair.
Commenting on JLL’s research, Ed Cole, director, JLL industrial and logistics, said: “Following a very active start and end to 2018, take-up comfortably exceeded the 20 million sq ft mark acting as a clear barometer of strong occupational demand, with the year being the third highest since our records began (2007). The levels of demand over the last five years, against a backdrop of modest economic growth, reflect the structural changes that have taken place in the sector, particularly e-commerce, as well as the essential role that warehouses play in modern supply chains. Last year also saw total Grade A availability increase predominantly due to greater speculative development, but also some notable buildings returning to the market from retailer administrations. Speculative development completions were significantly up on the previous year, totaling circa 7.2 million sq ft, but it’s important to note this was largely confined to prime locations and set against a take-up figure over 3 times higher.
Regionally, JLL’s research shows that the East Midlands accounted for the largest share of total take-up in 2018, accounting for 43% of demand. The region attracted a number of large build-to-suit (BTS) deals, notably in Castle Donington, Lutterworth and Corby, boosting overall take-up.
Joel Duncan, director, JLL capital markets added: “Investor demand for logistics assets remained robust throughout the year, with preliminary estimates of total industrial investment volumes suggesting that £7.6bn was transacted last year. The industrial and logistics sector continued to outperform traditional asset classes such as offices and retail in 2018, and over the next four years, our model-based forecasts indicate that this trend will continue and deliver strong returns over the period. Current investor demand is driven by the sector offering a strong occupational story with good rental growth providing the potential to enhance income returns. We’re also seeing considerable interest from overseas investors, particularly from Singapore, but the majority of transactions have been carried out by UK investors. As the logistics market continues to evolve, we expect investment volumes to continue to grow as more capital chases the sector.”
Tessa English, director, JLL industrial and logistics research concluded: “Looking forward, and given the strength of demand in 2018 and the political and economic uncertainty surrounding Brexit, take-up in 2019 may not necessarily reach the levels recorded in 2018. We do anticipate occupier sentiment to remain strong. The growth of online sales will alsocontinue to drive demand for logistics space this year. Overall, we should see further rises in Grade A supply in 2019, but the anticipated increase in supply will be at a more modest rate than last year. ”