Brexit talks and ecommerce growth "set to drive" industrial in 2018

By Paul Norman - Thursday, March 08, 2018 12:23

The UK logistics and industrial sector this year will be largely driven by ongoing Brexit trade talks which could impact manufacturing and the growth in eCommerce, according to a report by Cushman & Wakefield.

The report also predicts that the demand/supply imbalance in the logistics & industrial sector, compounded by a severe lack of developable land and upward pressure on land values, could lead to vertical schemes. This type of development has already been seen in a number of European cities with developers planning similar schemes in locations like Heathrow and Park Royal in London.

The research revealed that annual take-up in 2017 was on par with 2016 at 26.9 m sq ft, although it was 8% below its five-year average. There is around 5.6m sq ft of speculative space under construction and due for completion this year which is set to take Grade A availability to a six year high of 20.6m sq ft.

On a regional level, however, availability of grade A space varies significantly, ranging from over 6.5m sq ft in the South East to 266,000 sq ft in the North East. The demand/supply imbalance is putting pressure on prime rents and in particular, for larger sheds. Rents grew the fastest in Wales (over 13%) and the slowest in Yorkshire & Humber (2.3%).

The sector delivered a strong performance in the last three months of 2017 with total annual return for industrial and distribution warehouses rising to 20.9% and 17% respectively, up from 17.8% and 14.7% in Q3. Both sectors continue to out-perform the office and retail sectors.

Cushman & Wakefield forecasts moderate returns for the logistics & industrial sector despite a strong performance in Q4 2017. Continued diversification in the sector to include multi-level, mixed-use, and urban depot solutions should create opportunities for a wide range of investors.

Bruno Berretta, UK Logistics Insight & Research at Cushman & Wakefield said: “Brexit negotiations will undoubtedly influence real estate decision-making among many occupiers, notably those with European supply chains and regions which have strong trading links with the EU. However, the growth in e-commerce will continue to benefit the sector, as internet sales account for an increasing proportion of overall retail sales.

“Prime yields also continued to tighten last year across most UK markets. With the gap between prime yields in West London and the risk-free rate, investors who remain keen on this sector, may turn to new opportunities that are likely to emerge this year.”

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