Golden Triangle of Logistics’ leads the way in UK’s industrial construction


Approximately 8.7 million sq ft of speculatively developed space was under construction by the end of January 2019 in the UK, indicating this year’s total amount of completed warehouse space could potentially surpass this cycle’s record high of circa 9 million witnessed in 2016.

The Midlands leads the way with over 4 million sq ft of speculative pipeline under construction for the same period, with most of this space being built in the East Midlands as robust demand for large distribution warehouses in the region continues to incentivise investors and developers, according to the bi-annual Spec Map published by global real estate advisor Colliers International. 

While speculative activity over the past 12 months accelerated in the Midlands, this was matched by a strong demand for new build units, resulting in more than 2.2 million sq ft of newly-delivered speculative warehouse space being taken up in 2018.

Coinciding with the publication of Colliers’ Spec Map is the company’s Rents Map, which charts the growth change of prime rents, secondary rents and land values over the last seven years across 120 locations in the UK and Ireland. 

Key findings from this latest research suggests prime rents for Big Sheds (100,000 sq ft +) increased on annual basis in both the East and West Midlands by 5.2 per cent and 2.3 per cent respectively.  Northampton led this growth at 8 per cent with prime rents being achieved in the region of £6.75 psf.  
 
Prime rents for multi-lets experienced stronger pressure with annual growth in the West Midlands reaching 9.3 per cent whilst the East Midlands saw a respectable 5.3 per cent. 

With that in mind, a mismatch between product availability, time of delivery and strong demand filtered through the secondary market with secondary rents increasing significantly in the West Midlands (25.2 per cent) and the East Midlands (23.2 per cent) as occupiers struggle to fulfil their requirements.

Simon Norton, Director, Industrial & Logistics, Colliers International, said: “Strong market fundamentals, coupled with underlying rental growth dynamics, created the perfect storm to exert upward pressure on land values as both local, national and international investors sought to increase their holdings in the ‘Golden Triangle of Logistics’ in 2018 – we expect this trend to continue throughout 2019.”

Echoing Norton’s sentiments, Len Rosso, Head of Industrial & Logistics, Colliers International, said: “While uncertainty around Brexit continues, in the Industrial & Logistics sector we are witnessing almost record levels of take-up as occupiers compete to future-proof their supply chains. 

“In 2018, the retail sector accounted for a record breaking 54 per cent share of total take-up as the change in consumer behaviour continues to drive demand. Combined with growing land prices, this high level of occupier demand is putting upward pressure on rents and is encouraging developers to build speculatively.”

Andrea Ferranti, Head of Industrial & Logistics Research, Colliers International, said: “A combination of a lack of supply and buoyant market activity has meant that prime rents in England, for both small and bigger sheds, increased significantly in 2018. 

“More specifically, as occupiers were left with limited options to secure their properties in 2018, the gap between prime and secondary rents narrowed further as inflationary pressure on secondary rents reached 11.7 per cent for the two industrial sub-sectors. The industrial sector has had two stellar years in terms of investment performance, and we fully expect this the sector to remain a top-performer in 2019.”