MARKET INTELLIGENCE
Big box bulletin
2023: Review of distribution activity
Rhenus Logistics, Nuneaton - Credit: Chetwoods
DATA & ANALYSIS
COMMENTARY
Andrew Jackson
Principal & Managing Director, Industrial
Take-up of big-box grade A units* totalled 19.1 million sq ft in 2023, a 36% decrease year-on-year (YoY) and 40% lower than the 5-year average. This would indicate that leasing activity has fallen back in line with pre-pandemic levels. This sentiment filtered through our big-box enquiry levels in 2023, which were 28% lower than last year. Enquiry levels did pick up towards the latter part of 2023 with a 9% increase in enquiries recorded between H1 2023 and H2 2023 which bodes well for take-up in 2024. Another positive was that the Midlands’ prominence remains, even with leasing volumes moderating. The UK’s logistics heartland accounted for 62% of the leasing market and 51% of all live enquiries received this year, with locations within the ‘Golden Triangle’ (including Northampton, Daventry International Rail Freight Terminal (DIRFT), and Coventry) representing a 52% share of all grade-A big-box deals.
By the end of 2023, supply of grade A big-box space totalled 47.4 million sq ft, 38% higher than 2022 driven by second-hand stock returning to the market (an increase of 95% since year-end 2022 to 16.8 million sq ft). Despite rising, availability remains characterised by smaller sheds (100,000 - 399,999 sq ft), with 92% of supply (by number of units) ranging between 100,000-399,999 sq ft in contrast to the 8% when comparing the number of ‘mega sheds’ (400,000 sq ft+). A slowdown in spec-starts, resulting from challenging development feasibility and financing options, means we expect supply to tighten in 2024, particularly in prime locations. Such tight supply dynamics will mean we may see big-box rents continue to rise, despite challenging economic conditions. Some regions have already experienced significant rental growth over the past twelve months, including the North West (+19%) and the Yorkshire & Humber (+9%). The West Midlands (+11%) and East Midlands (+5%) have also registered impressive rental growth, with both regions expecting to see double-digit rents achieved in 2024.
"Challenging financing, aggressive outward yield movement and a lack of vendors continued to drag on investment activity in 2023. Such conditions meant the single-let distribution warehouse (units 100,000 sq ft+) investment market for 2023 saw £1.1 billion transact, a result 46% lower than in 2022 and 38% lower than the 5-year average."
While a challenging landscape, Aviva Investors, Copley Point, Brookfield Asset Management and St Modwen (Blackstone) were particularly acquisitive, accounting for 21% of the £1.1 billion transacted. Nonetheless, while investment versus last year or the 5-year average remains below par, 2023 marked another year where investment surpassed £1 billion, highlighting that an appetite for the sector remains, drawn to its robust occupier fundamentals. We also remain confident that a recovery will occur in 2024, ramping up if interest rate cuts emerge and pricing corrections solidify.
*Grade A units over 100,000 sq ft.
Andrew Jackson
Principal & Managing Director, Industrial
Robert Rae
Principal & Managing Director, Industrial
OCCUPIER MARKET IN BRIEF
The first quarter of 2022 has been somewhat muted for take-up of Grade-A Big Box space, totalling only 4.3 million sq ft, significantly lower than last years’ record Q1 take-up levels of 13.5 million sq ft and 40% lower than the five-year Q1 average of 7.4 million sq ft.
"2022 will be a challenging year for the industrial market, driven by external factors such as ongoing supply chain problems and potential construction delays, however, this is unlikely to hamper demand for space."
Tom Bridgman
Principal, Investment
INVESTMENT MARKET IN BRIEF
Investment volumes for distribution and industrial assets during the first quarter of 2022 totalled £1.9 billion. This was 8% down on the comparative period in 2021 and just 3% down on the five-year quarterly average.
“Despite a relatively subdued first quarter, which could be driven by the current economic and political situation – as well as a replenishing of investment stock, after a flurry of activity during the final quarter of 2021 - strong fundamentals will continue to underpin demand across the market.“
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