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News Release

London

Grade A shortages fuelling market growth according to JLL's latest research

The UK’s Big Box industrial and logistics market saw rising levels of Build to Suit schemes and speculative development in H1 2014


According to the latest research from JLL into the UK Big Box Industrial & Logistics market, the first half of 2014 was witnessed a fall in Grade A availability, increased speculative development and strong investor demand.


Greater demand for different types of warehouses, such as e-fulfilment centres, central parcel hubs and local parcel delivery centres and more flexible ‘multi-use’ facilities, is also impacting occupier take-up and leading to increased Build to Suit schemes (BTS).


Take-Up
Occupier demand in H1 2014 was 23 per cent lower than in the second half of 2013. The first quarter of 2014 was marked by some significant deals such as Waitrose taking 940,000 sq ft at Magna Park, Milton Keynes.


Approximately 6.4 million sq ft was taken up in H1 2014 consisting of 3.6 million sq ft of space in new units, and 2.8 million sq ft in  good quality second hand units.


The Greater South East Region (South East, East and London) accounted for the largest share of take up at 39 per cent of total Grade A floorspace transacted, with the West Midlands second at 17 per cent. This follows the trend of recent years for occupational demand to focus on core markets close to strategic distribution corridors.   

Three quarters of new space taken up has comprised BTS space, which has been a continuing trend over the past two years.
Retailers once again accounted for the highest share of demand.  Key deals involving retailers included Waitrose’s pre-lease of 940,000 sq ft at Magna Park, Milton Keynes, and Asda taking three units in the Greater South East: two in London and one in Dartford.

Supply
At mid-2014, total Grade A availability was 2 per cent lower than at the end of 2013, with new supply 79 per cent below its pre-recession peak. Grade A availability stood at 15.6 million sq ft, of which 6.0 million sq ft was speculatively developed space. At the end of June there were eight big box units speculatively under construction totalling 1.2 million sq ft.  


Richard Evans, Joint Head of Industrial & Logistics at JLL commented: “The fall in take up is probably due to a shortage of good quality available stock, coupled with the length of time it can take companies to source and agree terms on new build to suit facilities. There are a number of major requirements in the market so we expect to see a healthy level of demand recorded for the full year as well as further announcements of big box speculative development. ”

Investment market
Key investment deals in the first half of 2014 include Waitrose’s distribution hub at Magna Park acquired at a yield of 4.64 per cent, and a distribution centre built for Kuehne & Nagel and Heineken at Derby Commercial Park, acquired at a yield of 5.75 per cent. While investor interest remains focused on prime distribution assets, a lack of prime product means that investors are also targeting good quality secondary stock.

The continued high level of interest in the industrial market is reflected in the inward movement of yields. In London, yields stood at 4.75 per cent at the end of June having moved in 50bps since the end of 2013. This is mirrored in the South East with yields also moving in by 50 bps from 2013 to 5.25 per cent. Prime regional distribution yields stood at 5.75 per cent having moved in by 25 bps from the end of 2013.

The report predicts that there is further potential for yields to sharpen as investor appetite remains strong and there continues to be a lack of prime product available.

Jon Sleeman, Head of UK Industrial & Logistics Research at JLL commented: “The shortage of immediately available stock means that occupiers will continue to sign for BTS units, despite a modest pick-up in speculative development. This trend is also indicative of changing occupier needs, particularly the growing demand for Big Box warehouses to cater for the growth of online and multi-channel retail, which the 20-year old first generation of big boxes often do not do. It might be a cliché but one size really doesn’t fit all, and this applies to warehouse property demand now more than ever. ”     ​