Online retail giant Amazon has helped drive take-up of large industrial space to a new record in the third quarter.
According to Gerald Eve, 13.8m sq ft of occupier transactions were completed in Q3 – a rise of 11% on Q2 and the highest quarterly total ever recorded. Amazon committed to 3.4m sq ft of space but even without its contribution, total take-up was still well above the five-year quarterly average.
“The fact that take-up during this quarter was the highest it has ever been, despite the uncertainty created by the Brexit vote in June, underlines just how strong the appetite for large warehouse space is,” said Richard Ludlow, partner at Gerald Eve.
“Driven by online retail, and Amazon in particular, the ongoing demand bodes well for the future prospects of the sector.”
The quarter also saw a high number of development starts, and although completions actually fell slightly, there was still enough new speculative space finished to nudge availability up to 6.6% from 6.4% in Q2.
But with funds’ appetite for further speculative funding slowing during the quarter, it is anticipated that supply is set to remain constrained for the foreseeable future. “There is a greater reluctance to fund speculative development as funds wait to gauge occupier interest in schemes already completed or currently under way,” said Ludlow.
“But even this has an upside: it will avoid the huge overhang of speculative space built in the last boom and will continue to drive much-needed rental growth.”
Volatility following the Brexit vote led to a fall in investment activity during Q3 with volumes traded down 27% on Q2. “The dip in investment volume was to be expected, and can be attributed to both the Brexit vote and the slackening-off seen during most summer periods,” said George Underwood, partner at Gerald Eve.
“While the uncertainty immediately following the referendum did cause a small correction in pricing, this was largely on secondary stock with prime yields generally being upheld by a combination of robust investor demand and limited prime stock.”
“The current levels of capital targeting the sector are now stronger than pre-referendum following a sharp increase in the number of overseas investors attracted by the falling value of the pound. Investor confidence remains strong, with the compelling underlying occupational fundamentals continuing to appeal.”