Undersupply sparked a 16m sq ft boom in big shed development in the first half of 2015, including 7.6m sq ft of speculative development, according to research published today by BNP Paribas Real Estate.
According to BNP, speculative development surpassed a record held since 2007, while design and build deals on units over 100,000 sq ft accounted for 8.4m sq ft of transactions in the first six months of 2015.
Much of the growth was driven by retailers’ 13.6m sq ft take-up of industrial accommodation, reflecting growth of seven per cent year-on-year. Total activity from retailers accounted for 60 per cent of up-take figures. Discounters, including Lidl, Aldi and TJ Morris took 1.7m sq ft in new hubs, with Lidl and Aldi, respectively, taking on properties in Scotland and Wales.
BNP Paribas Real Estate’s Nick Waddington said: “Over the past 18 months the dire lack of supply in the UK’s industrial and logistics markets has seen occupiers increasingly looking at design and build as the best route of acquiring the space they need. The willingness of developers to make a start on many speculative developments is also helping to alleviate a chronic supply shortage.”
In contrast to the levels of activity from occupiers and developers, the Big Shed report revealed that activity in the investment market has been more subdued during the first half of 2015 compared with the volumes transacted during 2014, with £1.8bn transacted – 16 per cent down year-on-year.
Hugh White, head of national investment, at BNP Paribas Real Estate, said: “Although down on an exceptional 2014, this figure must be seen in context and it should be remembered that the first six months of this year saw the second largest volume of transactions on record, up 61 per cent on the first half of 2013.
“Convinced by the buoyant occupational story in the logistics sector, a number of funds are actively trying to deploy their capital into the sector, but are being left frustrated by a lack of opportunities. Adding to this frustration is that when opportunities do arise, aggressive bidding wars are taking place. This has seen yields nose-dive, with 10 deals completed this year at sub 5.2 per cent net initial yields, with half of these within the M25.”
The biggest investment is Standard Life’s forward funding deal of a new 638,000 sq ft John Lewis distribution centre.