The Brexit vote shockwave hit hard and fast and took everyone, including William Hill, by surprise.
The EU was clearly a flawed concept, but the timing of the vote while the UK was still in recovery was less than ideal. What came as a more pleasant surprise was the rapid government realignment, a new prime minister within three weeks and marginalisation of some of the key pro-Brexit political chancers. Demands for immediate triggering of the Article 50 directive for formalising the Brexit process have quite rightly been so far rebuffed while the UK redefines its trading relationships.
So after the initial shock, life in the prime urban logistics sector carries on, to a certain extent unabated. UK consumers spend more on internet shopping per capita than anywhere else in the world, which has driven an increased number of high-street retailers to take sheds - this trend has doubled in size since 2010 and can only increase.
Some agents are talking of never having been busier, albeit acknowledging in the same breath that the odd occupational deal has been dropped. The overall supply/demand dynamic in the core areas that Goya focuses on, however, remains in rude health, and this has been reflected in the investment deals for prime product in the market post Brexit vote that remain very aggressive.
When we set up Goya in the midst of the 2010 recession, it was one of our founding principles that to pioneer the new speculative warehouse market we had to build the best-quality product out there, in only the prime areas - the rationale being that we get the premium rents in the good times, and we can price our way out of our positions in the not-so-good times. This strategy remains as important now as it has ever been. We continually evolve our product and actively look to our occupiers for criticism.
Demonstrable supply-demand imbalance
Going forward, we believe in the speculative market to the extent that we have started a £75m, 340,000 sq ft speculative construction programme that involves developments in Egham, Gatwick, Woking and Cambridge.
We strongly believe that the occupational market remains strong in the core areas where there is a demonstrable supply-demand imbalance. Whisper it quietly and we are now getting used to pre-letting good chunks of speculative development - 35% at Egham and 100% at Gatwick.
This is very different from the tenor of spec development previously. We leave the non-core areas to others and acknowledge that confidence in these areas may well be wobbling a little.
The harsh reality of recent events is that the industrial market site pricing needed repositioning to reflect the risk that developers and funds were taking. That is why Goya exited the site acquisition market for six months and sold on some of our developments to pension funds. The market had become too obvious and some developers and agents were reintroducing the bad habits of the previous boom.
We therefore welcome this correction and the closer scrutiny of strategy and believe that it has created an opportunity to reboot and go again for those that know what they are doing. On this basis, we believe strongly in repeat business with a small group of like-minded funding partners who don’t just follow the crowd.
And don’t let anyone tell you that site values haven’t decreased since June. Even the most blindly optimistic will acknowledge that even in our most gloriously resilient sector, the risk curve has increased slightly. That does not mean that exit yields or rental growth for existing product will be affected but it means that there are forces beyond our control that may have an influence over a three- to five-year timeline - for good or for bad. We are not clever enough to know whether this price correction is a temporary or medium-term situation. All we do know is that our strategy is expected to deal with all outcomes.
Jim Bryan, director, Goya