UK Industrial Spotlight – April 23
Industrial Spotlight provides regular short insights into the industrial and logistics market including key market indicators, market commentary and deals and our view on issues that are impacting the market.
Key market indicators
JLL prime rents – robust growth continues into 2023
Based on prime headline rents in the 62 markets we monitor, average prime rents for standard industrial units between 10,000 and 20,000 sq ft rose by 4% in Q1 2023 and by 12% over the year.
In the Big Box distribution market average prime headline rents rose 3.8% in Q1 2023 and by 12.8% over the year based on 32 locations.
This data suggests that the positive rental growth momentum seen over the past two years has continued into the early months of 2023.
Third party indicators
The MSCI Monthly Index (March 2023) reported all industrial UK rental growth of 1.8% in the three months to March and 8.6% over 12 months.
The ONS/BEIS Construction Materials Price Index for all work rose by 0.4% in February 2023 but was 3.7% lower than its recent peak in July 2022. The price of fabricated steel rose 1.1% in February but was 26.1% below it peak level in May 2022.
The April 2023 average of new independent forecasts for the UK economy compiled by HM Treasury shows an average GDP forecast for 2023 of 0.0% with annual CPI inflation in Q4 2023 of 4.0%. The corresponding predictions for 2024 are 0.8% and 2.7%. So, the growth outlook is weak but inflation is expected to fall significantly from its current rate of 10.1%.
Big Box market
Our latest figures on the Big Box logistics market involving Grade A buildings of 100,000 sq ft and over show that take-up eased back to 4.9 million sq ft in Q1 2023 while supply rose to around 29.8 million sq ft at the end of March based on immediately available space and space under construction speculatively. Another 4.1 million sq ft was available by way of assignment or subleases. However, across GB the vacancy rate based on the existing stock and buildings under construction still looks relatively modest at 7.7% and it is just 3.6% if buildings under construction or being refurbished are excluded.
As noted above, prime rents continued to rise across the Big Box market. Whilst momentum has slightly slowed among occupiers and supply has increased, our occupier team has won a number of mandates from companies in the last month all wanting to acquire buildings by the end of the year across the mid and Big Box market.
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Investor demand for industrial remains strong, the issue is a lack of stock
JLL’s latest data show that less than a billion pounds of UK industrial stock transacted in Q1 2023, compared with a quarterly average of £2.55 billion over 2022. However, increasingly we are seeing strong interest for stock that is brought to the market, suggesting that a lack of supply, rather than demand, is the main constraint on greater investment activity. Recent examples to highlight this include a multi-let estate in Woodford Green, north London which has just been acquired by M&G for a net initial yield of c 3.8%, which attracted more than 10 bidders; the Project Venus portfolio, comprising Prospero Ansty Park at Coventry plus a 550,000 sqft Big Box asset leased to Victoria Plumb near Preston, which has just gone under offer for c £250 million following strong interest; and the Spears portfolio (c £150 million) which has just been through first round bids, which also saw strong interest.
Although the debt market continues to fluctuate, JLL moved its assessment of prime industrial yields in by 25 bps in March to reflect the improvement in investor sentiment. At present, we see lots of positivity but also headwinds that will continue to challenge the market. However, with UK institutions re-entering the market we expect positive sentiment to improve.
Sector spotlight - the Multi-let and Mid Box industrial market
New data just published by JLL show that across GB some 7.3 million sq ft of new Multi-let and Mid Box industrial and warehouse space was taken up in 2022 in units from 5,000 sq ft to 99,999 sq ft and an additional 1.1 million sq ft was transacted in Q1 2023. At the end of March 2023, the total new supply in immediately available units and space speculatively under construction was 14.7 million sq ft, equivalent to just two years of take-up based on 2022 levels. Average prime rents across GB rose 4% in Q1 2023 and by 12% over the year.
Occupier demand seems to be led by demand for better quality buildings either new or fully refurbished with rents still increasing in areas where there is short supply particularly in the South East.
Overall, we think the market will be resilient, despite a weak economic growth outlook, because businesses increasingly see the benefits associated with new buildings both from an operational perspective and in terms of achieving wider ESG goals, including minimising carbon, and improving energy efficiency and staff wellbeing.
An interesting, and innovative, development in the Multi-let market is expected to complete next month in Barking, east London. BeFirst, the development arm of Barking and Dagenham Borough Council, is developing the Industria scheme to provide 101,747 sq ft of new industrial warehouse and creative space in 45 units in two connected buildings, one with two upper levels and one with three upper levels. Access to the upper floors is provided by a ramp and cargo lifts. The development has been built as a vertical industrial estate in line with the 2021 London Plan which seeks to encourage industrial intensification to make best use of London’s stock of industrial land. Industria is the first multi-storey development of this sort to complete in London and the UK since the X2 development at Heathrow in 2008. JLL has recently been appointed by BeFirst as one of the marketing agents for this scheme and we would be delighted to hear from if you if your clients may be interested to taking space within this development. Please contact Jeffrey.Prempeh@jll.com, Leah.Cave@jll.com or Tessa.English@jll.com.
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