Take-up of 100,000 sq ft-plus industrial units has fallen sharply this year – slumping in the third quarter to 23.6% below the 10-year quarterly average, reveals the latest BNP Paribas Real Estate industrial and logistics review.
Despite Amazon signing a pre-let for 2.2m sq ft of space at Central Park in Bristol in July, just 4.52m sq ft of space was taken in Q3, taking the total for the year to date to 18.1m sq ft – not much more than half the total reached in 2016, which was a record year for the sector.
BNP PRE attributes the fall in take-up to the “current economic uncertainty” and supply restraints. Only 4.6m sq ft of new space is due to come online by the end of the year. However, with developers becoming more risk averse, less than 3m sq ft is due to be completed in 2018. “Development is predominantly focused on already established distribution parks, with little appetite for taking on development risk in new locations,” states the report.
As has been the case in previous years, retailers continue to dominate take-up – Amazon and Lidl account for 4.8m sq ft of the total take-up figure for the year to date. Manufacturers also registered a strong showing, accounting for 5.11m sq ft of take-up – 17% up on the 10-year average – thanks largely to two major deals to automotive businesses Jaguar Land Rover and Aston Martin.
Although occupier activity may have slowed in the first three quarters of the year, investor appetite has not. Investment volumes hit £1.84bn in Q3 – well above the 10-year average and in the year to date, capital inflows have surpassed £5.76bn. Domestic investors have dominated proceedings, accounting for around £3bn more than buyers from overseas. That said, investment activity from overseas operators – to date – is the second highest on record.
According to BNP PRE, investors have been attracted by the sector’s relatively high-yielding profile, combined with the structural shift within the occupational market.
“Investment is also not solely confined to existing assets,” says Katie Taylor, senior research analyst at BNP PRE. “Tightening supply on the occupier side has led more investors to consider forward funding or taking on development themselves.”