Rising rents in the industrial market as a result of increased demand is making this sector much more attractive to investors and we think units and warehouses will be sought after throughout 2017.
Savills, for example, predict the UK warehouse market will enjoy the best year since records began in 2017.
The industrial sector was the best performer in November, according to the CBRE monthly index, which contributed to UK commercial property capital values increasing faster than any other month of 2016. Capital values in the industrial sector rose 1.2% and total returns increased 1.7% with the commercial property sector as a whole performing well with capital values up by 0.5% whilst total returns rose for the third consecutive month, increasing from 0.5% in October to 0.9% across the UK in November.
However, in its annual report, CBRE expected 2016 property investment volumes to finish at just under £50bn, around 30% lower than 2015, a particularly good year which was unlikely to be sustainable throughout 2016. CBRE expect much of the same for 2017 with industrial property continuing to deliver and ‘alternate’ or ‘specialist’ sectors performing well. Innovation and technology sectors will be key this year’ with logistics and data centres standing out.
Technology is also set to be a major influencer with such buildings as the UK’s second multi-floor warehouse in Essex set to be completed in the first half of 2017 whilst plans for underground facilities in London reflect the growing need for distribution centres to be closer to the urban areas they serve as consumers expect a more rapid online delivery service. The report also predicts the rise of mixed use on sites whereby warehouse space is combined with other uses even residential. In the warehouses themselves, technology will play a larger role as it is applied to tasks such as picking and selection to increase turnaround from order to delivery.
Savills expects take-up of warehouse space to exceed the 34 million sq ft (3.1587 million sq m) of space transacted in 2014 and like CBRE, makes a direct link with the continued growth of online retailers which make up around a third of the market and thus the biggest occupier of space in the sector.
Since 2009 warehouse space has fallen by 71% so land for warehouse development will be an important factor for online retailers looking to develop their business model. Savills research articles shows 45% of current logistics demand is from retailers with Amazon accounting for just over a quarter of take-up in 2016, but its calculations show that by the end of 2016 only 1,600 acres (647 hectares) of land remains available and primed for development in the South East, where demand for last mile distribution sites are highest.
In detail, Savills’ figures show a particularly vibrant sector, the third quarter of 2016 saw 10.45m sq ft of warehouse space transacted, 4.7m sq ft above the long term average of 5.7m sq ft and a massive 166% up on the same quarter in 2015. It meant by the end of the third quarter of 2016 take-up had exceeded all of 2015.
Now in its 23rd year, the thrice yearly Property Pricing Survey from Colliers International also showed industrial as the most active sector for purchases and predicts it will be the strongest performer over the next four years with annual returns of more than 7%.
JLL also argue the demand for warehouse space will continue unabated as a direct result of consumer expectations of next-day or even same-day delivery following online purchases and also predicts a number of innovative solutions including more multi-level warehouses. Likewise, warehouses are now high-tech environments where space is maximised and the buildings themselves are energy efficient and environmentally friendly. Glass windows providing a mass of natural light and LED lighting as well as occupancy sensors and other smart control systems are features which define the modern warehouse.