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Industrial sector boom of 2021 set to continue
décembre 15, 2021
Avison Young releases year-in-review analysis of industrial market.
“The momentum that has been gathering for several years behind big box warehousing, has grown especially acute since the second half of 2020, and shows no signs of abating. Occupational activity reached record levels in 2021, driven by the ongoing ecommerce boom,” says Andrew Jackson, Principal and Managing Director, Industrial at Avison Young.
Continued high levels demand for e-commerce facilities have driven occupational activity to reach record levels for large grade A warehouses (> 100,000 sq ft) during 2021. Unprecedented demand has resulted in significant increases in both land and rental values, as well as an increase in investment volumes across all regions of the UK.
For the third consecutive year, take-up has increased, compared to the previous year, totalling 46.6 million sq ft, 50% up on the five-year average, although this is likely to increase further as we are not yet at the full year end. Activity was driven by e-commerce, whether from retailers directly or third-party logistics providers. The non-food retail sector accounted for 50% of demand, whilst 3PL providers accounted for 25%. Amazon were the most active occupier, taking 8.8 million sq ft on top of a further 915,000 sq ft of contracts with 3PL providers. Other key occupiers include Super Smart, a 3PL provider based in the Midlands, and Ceva Logistics.
East Midlands saw the greatest share of activity, with a record 16.6 million sq ft transacted. Yorkshire and the North East saw the biggest relative increase in occupational demand, with take-up 77% higher than the five-year average. Most other regions including London, the South East, North West and West Midlands maintained strong activity throughout the year, while the South West saw below average take-up levels, driven by a lack of supply.
There will be a lack of supply of big box units in 2022. Availability of units amounts to 25.2 million sq ft at the end of 2021, slightly down from 25.8 million sq ft a year ago, which is under a year’s supply based on demand over the past five years. This tight supply will continue to put upwards pressures on land values, underpin appetite for speculative development and drive refurbishment of older stock.
The lack of existing product in the UK has led to a relative increase in take up of speculative space. 32% of take up was from speculative units compared to 25% over the last 5 years. D&B take up, which accounted for 50% of space, has stayed at similar levels to the five year average.
Rents have continually increased across all markets during the year. In the East Midlands the average prime rent is expected to reach £9, almost a 25% increase compared to 2020. London and the South East is seeing exceptionally high rents as 3PL providers and internet retailers are keen on acquiring market share and willing to pay higher than average rents.
2021 was a very active year for investment, with total volumes for large industrial units amounting to just over £12.5 billion across the sector, 55% higher than the five-year average.
Blackstone were the largest investor, acquiring industrial assets worth almost £3bn in total. Its two largest deals were portfolio deals, totalling almost £2bn; Project Alaska, a portfolio of Asda warehouses, sold for £1.7bn and the Albion portfolio, a collection of around 31 industrial and trade counter assets, which was sold by Westbrook Partners for over £280m.
The attractiveness of the UK industrial market drew huge demand from overseas investors during the year. In total, overseas investment made up 59% of total volumes, up from the 55% recorded last year. US investors accounted for 70% of all overseas investment.
London and the South East saw the highest volume of activity, totalling over £2.1bn. There was also a significant level of activity in the East Midlands, where volumes reached over £1.8bn.
The strength of demand during 2021 has led to yields compressing. According to the latest MSCI monthly index the average equivalent yield for distribution property decreased by 84bps over the 12 months to 4.69%.
A key trend for 2022, is the increasing pressure from occupiers, consumers, and policies to decarbonise and improve sustainability credentials across the real estate industry. All non-domestic rented buildings will need to meet EPC Band B by 2030 to remain operational, presenting both an opportunity and challenge for occupiers and landlords. However, developers are already embracing the demand for change and listening to occupiers. Segro, has created a concept called pocket parks, which pushes for greener space around existing and new developments to maintain and preserve the environment, as well as retain talent.
Construction has also started on UK’s first battery gigafactory at the former Blyth power station in Northumberland, making it the region’s largest industrial investment since Nissan’s arrival in 1984. As the government looks to ban the sale of petrol & diesel fuelled cars, gigafactories will be relied upon to help maintain the automobile industry in the future. The UK government has estimated that five more battery gigafactories need to be operational by 2027 in order to continue manufacturing vehicles to sell into the EU and UK at its current rate. UK battery tech investor Britishvolt hopes to have the gigafactory running by 2023.
“Despite the strong fundamentals in the industrial market, 2022 could prove a challenging year due to the lack of supply in the market, which will push rental and land values upwards, making the market even more competitive.” adds Robert Rae, Principal & Managing Director, Industrial, Avison Young.
Avison Young’s full Big Box report will be available in January 2022.