After years of decline, confidence is starting to return to the warehouse market as developers respond to an improving economy, recovering levels of manufacturing and current high levels of demand for warehouse property.
Improving market sentiment and a pick-up in economic
activity has seen total demand for warehousing floor-space across all regions
improve with take-up rising by around 28% in 2013.
In 2014, many developers and occupiers active in the
logistics and industrial sector remained relatively cautious and, as a result,
new construction continues to be driven mainly by build-to-suit activity. In
2014, speculative development rose to around 2.1m sq. ft., but this is still
significantly below the peak recorded in 2007 and 2008.
There continues to be good demand for larger distribution,
both from retailers and third-party logistics operators due to an acute lack of
available space. This trend is likely to continue with the growth of internet
shopping as retailers distribute their online sales from retail warehouse
space. In addition, as internet sales continue to rise, they are anticipated to
lead to a major change in the logistics market, as retailers invest in major
warehouse developments purely for internet sales.
In terms of occupiers, retailers continued to drive the
warehousing market in 2014, committing to large pre-lets and the importance of
the sector is likely to continue in 2015, driven by discount grocery retailers,
such as Lidl and Aldi, who continue to acquire more regional distribution
centres to support their expansion plans. In addition, the manufacturing sector
now accounts for a larger part of the warehousing market than in previous
years, with increasing occupier demand now driven by an upturn in manufacturing
output and, in particular, growth in the automotive export market.
Developers have reported an increase in the number of
occupiers switching from centralised distribution centres to a smaller,
regional ‘hub’ model of warehouse. As the major supermarkets continue to
improve their e-fulfilment networks and the need for quicker delivery times
increases, competition for smaller, urban distribution hubs near cities,
particularly in London – continues to grow.
On a regional basis, most areas of the UK have seen an
increased level of activity in 2013 and 2014, with the traditional industrial
markets in the Midlands and the North remaining the focus of activity. Greater
London and the South East experienced rising activity in 2013 but take-up
remained below trend levels in these markets due to supply constraints. In
addition, the geographical bias of speculative development is weighted towards
the Midlands, South East and the East of London, primarily driven by London’s
Gateway Logistics Park.
The switch from traditional store retailing to online
retailing is likely to cause a significant structural change in the warehouse
sector, changing the type of space required. This could lead to a ‘two-tier’
market becoming established, with more smaller distribution centres close to
urban markets to fulfil express deliveries, supported by remote and larger
distribution centres through which to replenish smaller urban warehouse hubs.
This is leading to retailers needing delivery facilities in multiple locations
and the warehouse market is expected to see more speculative development of
sheds of less than 250,000 sq. ft. in the suburbs, close to good road networks.
construction is expected to have begun a steady recovery in 2014 in response to
general economic recovery, an improving manufacturing sector, efforts by
retailers to streamline their supply chains and increased demand from logistics
businesses serving the e-commerce industry.”
Hartley, Director of AMA Research. “As a result, output is estimated to have grown by around 10% in 2014,
with further growth forecast in 2015-2018.”
Beyond 2015 and up to 2018 the
warehouse market is expected to grow year on year to reach a value of £1.7bn in
2018, though this is still well below its peak in 2007. The warehouse construction
market continues to face a number of challenges including increased competition
and, in particular, an acute shortage of industrial land, particularly in
locations close to major urban conurbations in some areas and planning delays.
Construction Market Report – UK 2014-2018 Analysis’ report is published by
AMA Research, a leading provider of market research and consultancy services
within the construction and home improvement markets. The report is available
now and can be ordered online at www.amaresearch.co.uk or by calling 01242