Ecommerce continues to drive UK logistics sector despite Brexit uncertainty
The UK logistics property market dipped in spring 2018, as economic uncertainty made for heavy weather, according to data from Cushman & Wakefield.
In total, 6.3 million sq ft was transacted between April and June this year, 32% down on the y-o-y total and largely due to uncertainty surrounding Brexit.
Ecommerce continued to dominate take-up, accounting for nearly 50% of all deals, with Amazon investing in its first ‘mega’ shed (1.5 million sq ft) in the North East.
The report also revealed that developers are addressing the demand/supply imbalance through new construction, with 8.7 million sq ft of speculative space due to reach the market in 2018.
As a result, Grade A availability has risen by 18% to 23 million sq ft since the beginning of the year, with the South East and North West registering the sharpest increases (59% and 52%) over this period.
Prime annual rental growth for larger distribution units returned toward the five-year average, with Wales (9.7%) and the South East (6.0%) registering the most significant uplifts. Prime yields have stabilised at 5.2%.
In the Investment market, preliminary estimates revealed that £2.5 billion worth of logistics/distribution properties changed hands in H1, down 26% on the corresponding period in 2017. Despite the slowdown, interest in the sector remains strong, particularly from overseas investors.
The report highlighted that, regardless of Brexit, UK logistics property is expected to continue to benefit from the growth of ecommerce which reached a new high in May, accounting for 18% of total sales.
Bruno Berretta, UK Logistics & Industrial Research & Insight, Cushman & Wakefield, said: “With less than a year before the UK officially leaves the EU, many occupiers have turned their attention towards Brexit and this has had a material impact on the deal flow in Q2, with fewer transactions agreed.
“Unless there is a visible breakthrough in negotiations, this uncertainty could extend into the second half of the year, when an official declaration outlining a blueprint for future UK-EU trade is expected during the quarterly EU summit in October. An upturn in activity is possible particularly given that enquiry levels for units of 50,000 sq ft and above have remained relatively stable in H1 2018 compared to H1 2017.”
Gordon Reynolds, International Partner, Logistics & Industrial at Cushman & Wakefield, said: “Recent announcements by the development community suggest that speculative completions in 2019, while unlikely to match 2018 levels, will remain sustained, pushing availability further up. Nonetheless, the market is far from oversupplied and new product will continue to test the rental ceiling.”