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JLL publishes its latest Big Box Industrial Report
BIRMINGHAM, 16 July 2014 - Built to Suit may continue to dominate over speculative in the Big Box market for Grade A units of 100,000 sq ft and over says JLL's latest research, as the logistics market's increasingly sophisticated requirements drives the need for a tailored approach.
Cameron Mitchell, head of UK logistics in JLL's Birmingham offices comments:
"We've been involved in three major built-to-suit deals this year in the Midlands, providing purpose built facilities where there simply weren't any existing buildings and whilst many might site supply as an issue, suitability is an increasingly an issue.
"The growth of on-line and multi-channel retail means that a fundamentally different type of warehouse is often needed from the first generation of sheds available, which may be 20 to 25 years old."
2.7 million sq ft of built to suit compared to 0.9m sq ft of speculative build was completed in the first half of 2014. Built to suit deals completed by JLL's Birmingham office this year include 165,000 sq ft warehouse at Prologis Park, Ryton for LG Electronics subsidiary, Hi Logistics; 231,000 sq ft also at Ryton for UK Mail and 170,000 sq ft warehouse for Freeman at Ryton.
"So clearly the market is changing because how we do business is changing. Certainly we are and will see more speculative build but even these are likely to be taken up before practical completion."
Across the UK, six units have been completed speculatively. A further eight are under construction at present, representing 1.2 million sq ft. 12 of these are between 100,000 sq ft and 200,000 sq ft and 1 is between 200,000 sq ft and 300,000 sq ft and 1 is over 300,000 sq ft.
A shortage of supply is however pushing up prices continues Mitchell: "Land prices are rising quickly. We've seen some strong increases over the past few months. The investors know there is a shortage of buildings and that the market is gradually returning and so as the economy picks up, so is the appetite for buying up strategic sites for development. "Accessibility is key for industrial land, with links to the motorway. M6, M1 in the 'Golden Triangle' and in Birmingham, M42 and M6 are all attracting huge interest." JLL was recently involved in selling a 40-acre site to industrial giant, Prologis, next to its Ryton Industrial park in Coventry. The site was sold on behalf of landowner, Ryton Properties and attracted strong interest from a number of investors and developers.
Retailers continue to be the most active source of demand, accounting for 50 per cent, 3.2 million sq ft of all Grade A take-up in H1 2014, compared with 43 per cent during 2013. Mitchell adds: "All retailers continue to look at ways to consolidate and increase efficiencies. And at present the budget supermarkets are leading the pack. The likes of Aldi and Lidl are certainly increasing their requirements, reflecting a rise in popularity. And as occupier demand rises so too will rents Mitchell adds: "Headline prime distribution rents in the major markets have remained broadly unchanged in the first half of 2014, however we are seeing net effective rents continue to harden as the incentives available to tenants fell further, which will ultimately lead to an increase in headline rents. "The tide is turning away from the occupiers market that we have had for some time and a lack of available prime space is making the market more landlord favorable and quoting rents in core regions saw notable growth in H1, 2014.
""There is a gathering of developers, big established names such as Prologis, Goodman, Gazeley and Roxhill with Segro who we will see pick-up the momentum in the industrial market. Plus I believe we'll see a couple of new entrants on the scene backed by funds too.
"The Midlands is well placed to take advantage of an upward trend in the industrial market and we believe the second half of the year will deliver a bright set of results for the sector." Mitchell concludes.
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