INDUSTRIAL & LOGISTICS VIEWPOINT€¦ · £56m (3.90%) Royal London Blackrock 7.70 yrs Three unit multi-let logistics estate Gatwick Distribution Park, Crawley £45.75m (3.50%) OLIM

I N D U S T R I A L & L O G I S T I C S V I E W P O I N T

2020 UK

FOREWORD 4

NATIONAL MARKET 6

LONDON & THE SOUTH EAST 8

WEST LONDON 10

SOUTH WEST 12

MIDLANDS 14

NORTH WEST 16

YORKSHIRE & THE NORTH EAST 18

SCOTLAND 20

NORTHERN IRELAND 22

CAPITAL MARKETS 24

CONTENTS

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54

LEN ROSSOHead of Industrial & Logistics +44 7831 436 096 [email protected]

ANDREA FERRANTIHead of Industrial & Logistics Research +44 7522 357 441 [email protected]

Despite the political and economic uncertainty that many businesses in the UK faced in 2019, the Industrial and Logistics sector has remained resilient.

Some of the key findings of this Viewpoint include:

• Demand for industrial and logistics space in 2019 remained strong with take-up reaching in excess of 30m sq ft for the year, exceeding the 10-year annual average by 17%, but 14% below the record breaking 2018

• The industrial sector out-performed all other property asset classes in 2019, partly driven by very strong rental growth in London and key South East locations

• Rental growth is expected to moderate in 2020, although logistics units located in heavily populated areas will reach above average returns

• At the beginning of the year we were expecting 2020 to be a record year in terms of demand. However, material downside risks associated with the Covid-19 virus may limit the occupational upside. Should the virus run its course in the first half of 2020, we may expect to see a busy second half as occupiers regroup and press ahead with urgent projects

For an informal chat, please do not hesitate to get in touch with either myself or one of the team. I look forward to meeting you personally.

We are pleased to launch our new Industrial and Logistics Viewpoint 2020, which is designed to give you an overview of national and regional activity.

NATIONAL MARKETEconomic outlook

The heightened economic volatility that we have seen in the wake of the Government’s Brexit negotiations and planning in 2019 has placed an unprecedented strain on UK supply chains. There are concerns that economic weakness could impact consumer spending. While the latest ONS data shows a very strong labour market with an unemployment rate of 3.8%, Q4 2019 household spending saw a negligible 0.1% q/q rise. Annual wage growth in December 2019 topped 2.9% and with a sluggish inflation at about 1.4%, this should support consumer spending in 2020.

GDP growth in 2019 is expected to reach 1.3% (Oxford Economics), partly impacted by trade protectionism and an associated rise in global uncertainty which caused a deterioration in business investment. The economic performance in 2020 is forecast to moderate to 1%, before picking up to 1.9% in 2021.

It is worth mentioning that the impact of Covid-19, commonly called Coronavirus, is not yet visible in the official data, but given China’s position at the centre of many global supply chains, a temporary negative impact of some scale is likely.

Market overview

Strong market fundamentals are expected to drive the industrial sector forward as occupiers’ focus on streamlining supply chains continues unabated. Based on current market dynamics, total space under offer, and the wider consumer and technological landscape, we were expecting 2020 to be a record year in terms of demand. However, material downside risks associated with the Covid-19 virus may limit the occupational upside over the first half of the year.

2019 was a very challenging year for business planning. Political uncertainty and exchange rate volatility made it extremely difficult for businesses to commit to large capital expenditures. Nevertheless, the sector has been supported by strong occupational demand driven by occupier needs to future-proof supply chain operations. In this regard, take-up figures for large distribution warehouses (greater than 100,000 sq ft) topped 30m sq ft, in line with the five-year average.

Supply has increased and now stands at around 36m sq ft, but considering that 9.0m sq ft of new-build space was completed in 2019, the market remains well-balanced in terms of supply and demand, with developers seemingly unfazed by the current economic jitters. In this respect, our records show that 6.6m sq ft is either under construction as of February 2020, or recently completed and available to let.

In terms of MSCI performance measurements, the industrial sector out-performed all other property asset classes, partly driven by very strong rental growth in London and key South East locations. The sector has enjoyed strong rental growth for several years now and consequently, we expect this to moderate in 2020, although logistics units located in densely populated areas will reach above average returns.

Now that the political impasse around Brexit has been resolved following the December 2019 election, the sector can start to move forward. The big challenge facing the logistics industry remains the low margins with retailers and consumers still expecting more for less. This is not sustainable in the long-term.

The conundrum of low margins versus large investments required for new technologies, mechanisation and automation will continue to define who will be able to future-proof their supply chain.

We should expect to see consolidation in the UK based freight forwarding and 3PL sectors, particularly amongst SMEs.

The view from the expert

6

Supply chain challenges

The success of a retailer’s online strategy is closely linked to the distribution sector and supply side functions. This explains the strong levels of take-up nationally for both large distribution warehouses and urban logistics space as companies seek to cope with increasing demand.

Colliers predicts that the next 10 years will be transformational in the way that occupiers use their industrial space and integrate technology. The use of

robotics and the implementation of the 5G network will allow greater control over stock management and turnaround times. Consequently, the use of ‘big data’ and increased digitisation will be the next battleground for supply chain operators and retailers as they look to exploit synergies within their global business. The continuous growth of ecommerce, coupled with moderate economic growth prospects, will force retailers to continue to develop their omnichannel strategy more efficiently.

National Supply - The market remains well-balanced with supply in line with the five-year average

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Take-up by type of unit - Strong fundamentals continue to drive the sector forward

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Note: units 100,000+sq ft | Source: Colliers International

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7

CHRIS EVANSSupply Chain Specialist +44 77 99 58 72 30 [email protected]

AGENCY

William Bellman+44 7881 553 [email protected]

James Haestier+44 7818 038 [email protected]

Akhtar Alibhai+44 7909 684 [email protected]

Tim Harding+44 7860 180 [email protected]

Georgia Pirbhai+44 7599 533 [email protected]

Ailish Dove+44 7514 [email protected]

For more information please contact:

John Hanson+44 7825 251 [email protected]

Investment

LONDON & THE SOUTH EASTOccupier market

The London and South East market had a strong year in 2019 with take-up for distribution warehouses larger than 100,000 sq ft reaching 6.1m sq ft. This is 9% up on 2018. When analysed within the national context, take-up in the wider South East market (including London) accounted for a national share of 21%, the second largest share after the Midlands (45%).

A recurring theme over the past few years has been the lack of sites and limited choice for occupiers to fulfil their requirements and based on the latest study, there is less than 10 months’ worth of supply in the wider London and South East market. Consequently, both London and the South East out-performed other UK locations in terms of rental growth, with the latest MSCI quarterly data for Q4 2019 showing an annualised rental growth of 3.9% in both markets.

While there has been slight uptick in the development pipeline, availability still remains very tight and occupiers, in some instances, are exploring a wider range of locations due to several factors, such as rental growth, labour availability and most importantly, unit specifications. Emerging locations along the A1(M), such as Biggleswade, and M40, like Banbury and Bicester, have attracted interest from occupiers and developers. Amongst some of the most notable deals, Colliers advised Tritax Symmetry on the pre-let of a new 661,000 sq ft purpose-built RDC at Symmetry Park Biggleswade. Upon practical completion, targeted for Q1 2021, Co-op will take a new 20-year lease. Furthermore, the electric vehicles and components manufacturer, Arrival Automotive Ltd, took Unit 1A, Link 9 in Bicester (120,599 sq ft). The unit was let in December 2019, around eight months after practical completion.

With regards to activity inside the M25, the capital continues to attract a wide range of occupiers. Some of the key deals include Amazon taking 180,000 sq ft at Wembley180, whilst the food wholesaler, Wanis Ltd, agreed terms on a freehold turnkey distribution warehouse (140,000 sq ft) at SEGRO Park Rainham and Beavertown Brewery signed a pre-let of a 126,595 sq ft design and build unit at Enfield Distribution Park.

Looking forward, we expect this strong demand, partially driven by the growth of ecommerce, to continue to put further pressure on rents. Due to the lack of available sites, industrial investors will be increasingly assessing alternative use investment opportunities, for a long-term industrial play. This will potentially be facilitated as the change in consumer behaviour, advances in technology and urbanisation continue to bring the industrial and retail sectors closer together.

Investment

Investor appetite for assets located in London and the South East of England continues unabated as propcos, UK institutions and overseas funds remain attracted by reversionary investment opportunities and the long-term prospects that the market has been offering. As a result, provisional investment volumes reached almost £1bn in London in 2019, up 43% year-on-year. On the other hand, volumes for the wider South East market registered a 17% contraction, over the period, to £1.6bn.

8

PrologisSite acquisitionFormer Brooklands Bakery’s site, Weybridge

TRITAX SYMMETRYLeasehold disposalSymmetry Park, Biggleswade

TRACK RECORD HIGHLIGHTS

Address/Site Size (sq ft) Tenant Landlord Notes

Symmetry Park, Biggleswade 661,200 Co-op Food Tritax Symmetry 20-year lease

Design and build

SEGRO Park, Rainham 140,000 Wanis Ltd GLA/Segro Freehold turn-keyDesign and build

Unit 1A, Link 9, Bicester 120,600 Arrival Automotive Ltd RDI REIT Spec unit

Key occupational transactions

Address/Site Sale price - £m NIY (%) Buyer Seller WALT (WAULT) Notes

Towers Industrial Estate, West Thurrock £56m (3.90%) Royal London Blackrock 7.70 yrs Three unit multi-let

logistics estate

Gatwick Distribution Park, Crawley £45.75m (3.50%) OLIM Property Aberdeen

Standard 14.60 yrs Two South East logistics facilities

Oyster Park, Chertsey Road, West Byfleet £14m (4.35%) InfraRed BA Pension

Fund

6.00 yrs(4.50 yrs) Nine unit multi-let

industrial estate

Key investment transactions

9

Occupier market

The wider West London market remains a key UK hotspot for industrial occupiers who are seeking to capitalise on London’s growing consumer economy as well as long-term structural changes in the sector. Over the past couple of years, the London market in general has witnessed a broadening of the occupier base with firms from the entertainment industry and food & drink sector which continues to thrive.

Occupiers from the ‘Alternative’ sector have also been increasingly active in West London and, in this regard, Pinewood MBS Lighting’s 10-year lease of a speculatively developed unit at UX1 Uxbridge Industrial Park (134,168 sq ft) is a further testimony to this.

Similarly, in 2019, Virtus Data Centres took occupation of DC1 (75,000 sq ft) and DC2 (250,000 sq ft) at Prologis Park, West Drayton and Ark Data Centres is also understood to have paid a record land value per acre for the purchase of the entire Bullsbridge site (Impact Park). Langley Business Park, a 16.5 acre industrial site sale, has also been targeting the data centre sector.

With regard to rents, the chronic supply shortage and limited development land have, in turn, driven rental growth in the market. Prime rents for small industrial units have reached £20 psf in Park Royal, £14 psf in Feltham, £15 psf in Greenford and £16.50 psf in Heathrow. On the other hand, prime rents for units larger than 100,000 sq ft stabilised in 2019.

Looking ahead, the market will continue to witness strong demand and we expect further rental growth to come. In this respect, prime rents in London are forecast to grow by an annual average of 3.5% to 2023 and West London market’s supply/demand dynamic makes it well-placed to capture this growth.

Investment

There is a limited supply of investment stock in the wider West London market as investors tend to hold on to their best performing assets. As a result, following a competitive bidding process, the limited amount of investment opportunities becoming available are quickly snapped up. Prime yields are at around 4% but, for the best assets, investors are willing to pay sub-4%. In London, Prologis acquired Matthew Clark’s warehouse in Park Royal for circa £35 million at a NIY of sub-3.5%, while Valor Real Estate purchased Booker’s 65,000 sq ft in Acton at a NIY of 3.5% for £18.9 million. Looking forward, investor appetite will not wane and we expect this strong demand to continue this year.

WEST LONDON

Patrick Rosso+44 7825 571 [email protected]

Isa Naeem+44 7889 432 [email protected]

AGENCY


Michael Kershaw +44 7834 083 126 [email protected]

Investment

10

AVIVALeasehold disposal360 Stockley Close, West Drayton

AVIVALeasehold disposal UX1 Uxbridge Industrial Park, Uxbridge



UX1 Uxbridge Industrial Park 134,168 Pinewood MBS

Lighting Ltd Aviva Investors 10-year lease£12.50 psf

UX2 Uxbridge Industrial Park 37,917 Galaxy Insulation and

Dry Lining (Holdings) Ltd Aviva Investors 10-year lease£13.50 psf

Unit 5 The Planet Centre, Feltham 7,816 NCM Distributors Colliers Capital 10-year lease

6-year break



Central Way, Park Royal £34.50m (3.23%) Prologis Aberdeen Standard 4.16 yrs

Distribution warehouse let to Matthew Clark

Allied Way Industrial Estate, Acton £18.87m (3.5%) Valor Real Estate Schroder

REIT ConfidentialDistribution

warehouse let to Booker

Feltham Corporate Centre, Feltham £45.30m (4.75% ) Westbrook St James

Place PF 8.86 yrs

(7.40 yrs)Six unit multi-let industrial estate


1 1

Occupier market

The South West market has witnessed a renaissance over the past few years with large occupiers, such as Amazon and B&Q acquiring space in the region in 2018. That said, 2019 was impacted by the recent political uncertainty, which resulted in a lack of large deals being completed.

While activity remained subdued, occupiers continued to target Grade A space. Ocado’s acquisition of a speculative unit at St. Modwen Park Access 18, in Q4 2019, is testimony to the strength of this market. The 151,330 sq ft distribution warehouse reached practical completion in Q1 2019, but was let on a 17-year term at a rent of £6.75 psf the largest deal of the year occurred when Colliers advised Ballytherm on the freehold purchase of the 253,737 sq ft former XPO Logistics unit at Overross Industrial Estate, Ross on Wye.

According to the Colliers’ Rents Map, prime rents have remained stable across the region with the average prime rent for large distribution warehouses at £6.40 psf. Similarly, average prime rents for smaller units saw no changes and remain at £7.90 psf, although MSCI annualised quarterly ERV growth to the end of Q4 was recorded at 2.3%.

On the supply side, there is considerable activity and developers remain confident. In addition to Barwood Capital’s practical completion of 139,061 sq ft at Junction One in Avonmouth in Q4 2019, Trebor Developments has plans to deliver a 134,269 sq ft unit at Central Approach in Avonmouth and Barberry Group also plans to build a 101,500 sq ft distribution warehouse at More+ Central Park. Panattoni is also marketing its speculative scheme in Swindon, which comprises 613,644 sq ft in Phase 1 and 353,280 sq ft in Phase 2.

Looking ahead to 2020, we expect take-up activity to pick-up, which will result in more absorption of Grade A planned supply. Occupiers have been waiting in the wings to continue their expansion into the South West, but understandably, decided to delay their boardroom decisions due to the political uncertainty; hence, it is expected more leasing requirements to come to fruition this year.

Investment

Investment activity in the South West was moderate with volumes topping £255 million in 2019 (provisional data), down 17% on 2018 as investors focused on more established prime UK locations. Nevertheless, this drop in activity did not result in yields moving out. Prime yields in the region remained stable at between 4.75% and 5.00%. The largest transaction occurred when Hines Global Income Trust purchased the single-let warehouse to DSG from M&G for £36.5 million at Avonmouth in Bristol, at a NIY of 5%. The unit, which was built in 2006, and at the time of the purchase, had 11.75 years until lease expiry. With regards to multi-let, Bamfurlong Industrial Park in Cheltenham, a 28 unit multi-let estate priced at £7.45 million at a NIY of 4.52%, was bought by Dunmoor from CBRE GI.

Looking ahead, in 2020 we expect investment volumes to recover in the region as the greater political stability will make South West investment opportunities more attractive to national and overseas investors.

SOUTH WEST

Tom Watkins +44 7917 093 167 [email protected]

Alex Van Den Bogerd+44 7902 [email protected]

AGENCY


Richard Coombs +44 7795 652 [email protected]

Investment

1 2

PANATTONINew instruction50 acres site in Swindon

BALLYTHERM UK LIMITED Freehold acquisition Overross Industrial Estate, Ross On Wye



St. Modwen Park Access 18, Avonmouth 151,330 Ocado Group St. Modwen 17-year lease spec unit

£6.75 psf

Unit 5, Kendall Close, Bristol 56,078 Selecta UK Mileway

10-year lease Second-hand unit

£6.95 psf

Unit G8, Horizon 38, Bristol 52,497 Secure Express Delivery St Francis Group

15-year leaseSpec unit£7.75 psf



Western Appoach Distribution Park,

Avonmouth£36.50m (5.00%) Hines Global

Income Trust M&G RE 11.75 yrs Distribution ware-house let to DSG

GKN, Horizon 38, Filton £27m (5.00%) BP Pension Fund St. Francis Group 20 yrs

Indexed rent reviews 1%-3% pa x 5.

Hybrid space split 50/50

Forward funding

Bamfurlong Industrial Park, Cheltenham £7.45m (4.52%) Dunmoor CBRE GI 3.90 yrs 28-unit multi-let

estate


1 3

MIDLANDS

Occupier market

The Midlands has continued to attract large national and international occupiers, whilst capitalising on the growth of online demand. Take-up in 2019 reached a new historical high at 13.3m sq ft, which also resulted in a record-breaking 45% share of national activity.

Amongst some of the most notable deals for the year: VF Corporation agreed a 578,620 sq ft pre-let at Unit 1 Mountpark Bardon, Cummins Diesel’s pre-let (10-year lease) for a 430,000 sq ft design and build warehouse at Apex Park Daventry at a rent of £5.75 psf, and Urban Outfitters committed to building a 432,000 sq ft bespoke unit at Peterborough Gateway. These are just a few of a flurry of deals. In addition, Prologis also let two units to IAC (77,484 sq ft and 233,085 sq ft) at Prologis Park Birmingham Interchange in Solihull on a 11-year lease, at a rent of £7.25 psf and £6.65 psf, respectively.

The deal of the year occurred when Jaguar Land Rover (JLR) agreed to lease five design and build units at Appleby Magna, where the campus will total 2.94 million sq ft. This is the biggest pre-let in history and Colliers advised the occupier on this transaction. Furthermore, freight forwarder DSV will be joining JLR at the site as it has agreed a 450,000 sq ft pre-let from IM Properties.

In terms of rents, prime rents for large distribution warehouses range between £6.50 psf. and £7.00 psf with smaller distribution warehouses in south and east of Birmingham reaching £7.75 psf, with Solihull commanding prime rents of circa £8.00 psf.

To conclude, on the supply side, developers have responded to this strong demand, and availability has increased marginally due to a pick-up in speculative development. That said, some new speculative schemes are being let and Eddie Stobart’s pre-let of circa 620,000 sq ft of space, across three speculatively-built units, from Panattoni, is testament.

Investment

The Midlands investment market defied Brexit uncertainty in 2019 with investment volumes only recording a 4% annual contraction. Following the record-breaking activity of £1.5 billion in 2018, this result was the second best turnover on record, according to Property Data. The region is a prime hotspot for investment opportunities and well-known by overseas investors who want to be exposed to the growth prospects of the UK supply chain.

Prime yields in the Midlands are between 4.25% and 4.50%, although, further afield from the more established locations in the region, Alpha Capital is currently forward funding, at a NIY of 4.20%, a purpose-built distribution warehouse pre-let to DHL on a 20-year lease term in Manton Wood, Worksop. Aside from large distribution warehouses, investors have also remained attracted by good quality multi-let industrial estates in supply stricken markets. M&G Real Estate’s acquisition of Brackmills Central industrial estate for £28.25 million, at a NIY of 4.60% further reinforces this.

AGENCY

Simon Norton +44 7788 436 [email protected]

Charlie Andrews+44 7902 [email protected]

Tom Arnold+44 7880 091 [email protected]

Sam Robinson+44 7825 437 [email protected]


John Hanson+44 7825 251 894 [email protected]

Investment

1 4

LASALLE IMLeasehold disposalStoke 108, Radial Park, Stoke-on-Trent

JAGUAR LAND ROVER Site AcquisitionAppleby Magna - 2.94m sq ft



Appleby Magna 2.94 m – 5 units Jaguar Land Rover IM Properties 20-year leaseDesign and build

Mountpark Bardon 578,620 VF Corporation Mountpark / USS 15-year leaseDesign and build

Peterborough Gateway 432,000 Urban Outfitters Newlands Freehold sale



Manton Wood, Worksop £67.00m (4.20%) Alpha Capital DHL 20.00 yrs

Forward commitment of a distribution warehouse let to

DHL

Brackmills Industrial Estate, Northampton £28.25m (4.60%) M&G Pears Property

Group 5.65 yrs (3.95 yrs) 32 unit multi-let industrial estate

Birmingham 100, Walsall Road, Birmingham £12.48m (4.71%) Private Barwood

Capital 10.00 yrs Distribution

warehouse let to Primaflow


1 5

Occupier market

Demand for large distribution warehouses moderated in 2019 when compared to the strong levels witnessed over the preceding two-year period. Amongst the most notable deals of 2019: North West Farmers Ltd snapped up the speculatively-built distribution warehouse, Crewe 240 at Panattoni Commercial Park; Dnata will occupy a 145,000 sq ft design and build unit at World Freight Terminal at Manchester Airport; while the ecommerce, mail and pallet specialist, The Delivery Group, took a unit of 137,865 sq ft at Mountpark’s Omega scheme in Warrington.

Rents wise, the most interesting deal saw Alpha LSG signing a pre-let in Q2 for the 102,500 sq ft Unit 4 Icon Manchester Airport at a headline rent of £6.75 psf.

Buoyed by the positive market backdrop, investors and developers have put forward several speculative schemes over the past couple of years, which have exerted some upward pressure on supply for distribution warehouses greater than 100,000 sq ft. Some of the latest schemes completed in 2019, which are still available, include: 375 at Logistics North (375,000 sq ft), Unit 4 Mountpark Omega (183,669 sq ft) and L107 Liberty Park in Widnes (108,901 sq ft).

Tenant interest remains strong and several units are either under offer or seeing strong level of enquiries. An example of this is Haydock525 (525,600 sq ft), the speculative warehouse in Haydock, which at the time of writing (January 2020) saw Kellogg’s agreeing a 20-year lease. Moreover, we understand that just shy of 902,000 sq ft of new space is under offer across six units.

Industrial rental levels saw a positive 1.2% annual growth to Q4 2019, according to MSCI Quarterly Digest. In terms of prime rents, growth rates for large distribution warehouses have stabilised this year, with smaller units reaching new highs in Warrington and Manchester (£6.50 psf to £6.75 psf) and Lancashire and Liverpool (£5.75 psf to £6.00 psf).

Investment

Investment volumes in the North West reached circa £470 million in 2019, a reduction of 20% year-on-year as the wider ‘Brexit’ environment acted as a drag on investment. Nevertheless, for the right investment opportunity, well-let and in the right location, investor interest remained high. A key example of this is represented by Alpha Capital’s acquisition of a prime distribution warehouse at Airport City Manchester, let to Alpha LSG Ltd on a 20-year lease which was sold by Stoford Developments for £15 million at a NIY of 4.25%. Moreover, Warrington Borough Council acquired Movianto’s 377,000 sq ft unit in Haydock, let for 10 years with RPI uplifts, for £45.3 million, at a NIY of 4.8%, ahead of quoting at 5.0%.

NORTH WEST

SUPPLY CHAIN

Chris Evans+44 77 99 58 72 [email protected]

John Sullivan+44 7702 908 [email protected]

AGENCY

Nathan Khanverdi +44 7594 091 [email protected]


James Preston+44 7740 542 [email protected]

Investment

1 6

SAMPA AUTOMOTIVE GROUPTenant acquisitionTrafford Park, Manchester

A PLANT UK Tenant acquisition Rugby Business Park, Chadderton



Crewe 240, Panattoni Park, Crewe 237,734 North West

Farmers Group Panattoni 12-year leaseSpec unit £5.75 psf

Unit 2 Mountpark Omega, Warrington 137,865 The Delivery Group Mountpark 20-year lease

Spec unit £6.50 psf

Unit 4 Icon, Alpha Park, Manchester 102,500 Alpha LSG Stoford 20-year lease




Penny Lane, Haydock £45.30m (4.82%) Warrington Bough Council Moorfield 15 yrs

(10 yrs)

Distribution warehouse let to Movianto UK Ltd

Airport City, Manchester £15.02m (4.25%) Alpha Capital Stoford Development

20 yrs (15 yrs)

Distribution warehouse let to Alpha LSG Ltd

Parkway Trading Estate, Manchester £10.61m (5.19%) Threadneedle CBRE GI 5.3 yrs 11 unit multi-let

industrial estate


1 7

Occupier market

As a result of ‘Brexit’ uncertainties, 2019 industrial demand in the Yorkshire market failed to match the strong take-up activity witnessed in 2018, with 2019 provisional figures reaching 2m sq ft, down 57% year-on-year. Nevertheless, off the back of increased online consumer spending and a low national unemployment rate of 3.8%, well-located sites in proximity of motorways and good power provisions are attracting occupier and investor interest, with the take-up stagnation in 2019 expected to bounce back in 2020.

Some of the most notable occupational deals of 2019 included: Amazon signing a pre-let for a 731,000 sq ft fulfilment centre at Verdion’s nationally significant rail linked scheme iPort in Doncaster and Puma agreeing a 10-year term certain lease on SuperG, a 258,000 sq ft speculatively built warehouse at Glasshoughton, Wakefield in advance of practical completion of the building.

Furthermore, London Metric forward funded a 232,000 sq ft, design and build warehouse at Goole 36 for Croda, which agreed a pre-let for a 20-year lease. In addition, Peel Logistics Property speculatively built 134,000 sq ft at Bessemer Park in Sheffield which it let prior to practical completion to the manufacturer ITM Power.

The North East market was characterised by more subdued activity in 2019 compared to the record year of 2018, with the largest notable transaction occurring when Colliers brokered the freehold disposal of the 370,000 sq ft Coty Manufacturing plant to the food manufacturer VBites.

As developers and investors focus on the prospects of this in-demand sector, land values in the Yorkshire market have offered relatively good value. As a result, these have soared to an average of £458,000 per acre, up from £313,000 per acre in 2018, with prime logistics land values reaching well in the region of £650,000 per acre in 2019.

Capitalising on growing online sales, we anticipate improved logistics take-up in 2020 and, with further Grade A stock pipelined for delivery, we expect market headline rents for logistics warehouse space in excess of £6.00 psf.

Investment

The Yorkshire market witnessed a record-breaking performance in 2019 as £615 million total turnover was recorded, up 8.6% year-on-year.

The largest transaction resulted when Muse Developments completed a forward-funding deal for around £60 million with Aberdeen Standard Investments for a 361,000 sq ft distribution warehouse pre-let to Amazon at Logic Leeds. Furthermore, investor interest in taking development risk has acted as a boost to this regional market with several speculative projects being undertaken. Amongst some of the most notable ones, Panattoni will be speculatively building a 512,000 sq ft distribution warehouse called Wakefield 515 at Crosspoint 33.

If we look at achieved yields, Equites Property Fund’s acquisition of the newly built warehouse Super G in Glasshoughton is notable as the 258,000 sq ft national distribution centre, let to Puma on a 15-year lease, which was sold for £30.67 million, at a NIY of 4.6%.

YORKSHIRE & THE NORTH EAST

Robert Whatmuff+44 7703 393 [email protected]

Simon Hill+44 7736 480 [email protected]

Callum Robinson+44 7713 697 [email protected]

AGENCY


Ben Hall +44 7855 814 [email protected]

Investment

1 8

SAINSBURY’SFreehold disposalMaverick31 Wakefield Europort, Wakefield

VERDION Leasehold disposal iPort – IP9, Doncaster



iPort Verdion Doncaster 731,000 Amazon Verdion Design and BuildConfidential terms

Super G, Whistler Drive, Castleford 258,000 Puma Barwood Capital /

Tungsten15-year lease


Unit 2, PLP Bessemer Park, Sheffield 134,000 ITM Power Peel Logistics Property

(PLP)Spec unit £5.95 psfConfidential term



Super G, Whistler Drive, Castleford £30.67m (4.60%) Equites Property

FundBarwood Capital

15 yrs(10 yrs)

Distribution warehouse let

to Puma

Elmsall Drive, South Elmsall, Doncaster £32.78m (6.20%) Elite Partners

Capital London Metric 5.00 yrs Distribution warehouse let to Next

Aycliffe Industrial Park, Newton Aycliffe £12m (8.50%) Hansteen Holdings

PLC M&G 3.30 yrs (2.30 yrs)

53 unit multi-let industrial estate


1 9

Occupier market

Industrial take-up in Scotland for all sizes reached 5.2m sq ft in 2019, which reflected a slight reduction of 3.2% on last year’s activity of 5.4m sq ft. That said, this was down 10.2% when compared to the five year average. In our view, the lack of available stock has been a key determinant to this slower performance. As a result, we understand that there are several unsatisfied requirements due to a dearth of suitable buildings.

Amongst some of the largest deals, Saica UK paid circa £8 million for the former Lidl RDC at Deans Industrial Estate in Livingston (291,710 sq ft); Malcolm Logistics purchased, for its own occupation, a 240,966 sq ft, second-hand warehouse, at 16 Blackburn Road in Bathgate for £4.6m. Another notable deal occurred when the developer, Canmoor, agreed a 120,000 sq ft pre-let for a purpose-built warehouse at Westway Park, near Glasgow airport to the wholesaler JW Filshill. This is the largest pre-let in Scotland in over five years.

With regards to activity for distribution warehouses below 100,000 sq ft, Hermes agreed a 15-year lease at the 95,000 sq ft unit Colossus 2 at Eurocentral, at a rent of £5.65 psf. Pitreavie Group took 55,000 sq ft at 6 Grayshill Road in Cumbernauld and Network Rail committed to a 10-year lease for the 49,900 sq ft unit at 606 Clyde Gateway East Business Park in Glasgow at a rent of £7.50 psf.

On the supply side, the availability rate for the wider Scottish market now stands at 7.1%, a significant reduction from the record 11.9% witnessed in 2012. There has been very limited speculative activity in Scotland, with no new stock greater than 100,000 sq ft having been built speculatively for almost 10 years and this looks unlikely to change in the medium term.

Looking forward, we expect average rents to grow at a moderate pace in 2020, underpinned by tight availability and a pick-up in occupier activity.

Investment

At £58 million, Q4 quarterly investment volumes were little-changed from the £54 million transacted in Q3. However, annual volumes fell by over 50% from £332 million in 2018 to £155 million in 2019 and were below the 10-year average (£214 million) for the first time in three years. Hines Global Income Trust bought a distribution warehouse on Edinburgh’s Sighthill Industrial Estate for £25.4 million at a 5.3% NIY. The 215,000 sq ft asset is let to Royal Mail. Elsewhere, Standard Life acquired a 68,000 sq ft industrial unit at Aberdeen’s Badentoy North for £13.55 million at a 6.9% NIY. The property is let to oilfield services company Schlumberger Limited for a further eight years to break and 10 years to lease expiry.

SCOTLAND

Iain Davidson+44 7795 010 [email protected]

Colin McManus+44 7795 613 [email protected]

Lewis Pentland+44 7748 704 [email protected]

AGENCY


Patrick Ford+44 7811 150 [email protected]

Elliot Cassels+44 7968 196 [email protected]

Investment

20

CANMOORPre-let Westway Park, Renfrew

CEDARWOOD ASSET MANAGEMENTLeasehold disposal6 Grayshill Road, Westfield, Cumbernauld



Ex Lidl RDC Deans Industrial Estate,

Livingston291,710 sq ft Saica UK Lidl Circa £8m sale

Colossus 2, Eurocentral 95,000 sq ft Hermes Kennedy Wilson 15-year lease, break at 10£5.65 psf

Unit 606, Clyde Gateway East Business

Park, Glasgow49,000 sq ft Network Rail Aberdeen Standard 10-year lease

£7.50 psf


Address/Site Sale price - £m NIY (%) Buyer Seller Notes

The Malt Portfolio £27.00m (7.9%) David Samuel Properties

Cedarwood Asset Management

Eight industrial assets totalling 409,000 sq ft

38 tenancies (95.40% occupied)

Sighthill Industrial Estate, Edinburgh £25.00m Hines Global

Income TrustRailways Pension

Trustees Warehouse let to Royal Mail

Badentoy North, Aberdeen £13.55m (6.9%) Standard Life PIT Undisclosed

Warehouse let to Schlumberger Limited

Initial yield of 6.9%, rising to 7.9% in February 2020


21

Ian Duddy+44 7730 502 [email protected]

AGENCY & Investment


Occupier market

Demand for industrial space remains concentrated around the Greater Belfast area (30-mile radius) and established provincial industrial parks, which benefit from immediate accessibility to the motorway network. The market is very much deterred from opportunities that do not exhibit this key characteristic.

Amongst some of the market drivers, although not to the same extent witnessed in core English locations, third-party logistics operators managing contract-led solutions for a variety of business users, from ecommerce to international manufacturing companies are the main source of demand. The largest deal of the year occurred when TST Logistics took 129,000 sq ft of warehouse space at Silverwood Business Park in Ballymena from Silverwood Business Park Ltd.

Northern Ireland has been at the centre of last year’s ‘Brexit’ negotiations and this heightened uncertainty has impacted negatively on take-up activity. However, as more clarity emerges over trade negotiations between the UK and the European Commission, 2020 should see a pick-up in activity and the emergence of more significant pre-letting deals. In this regard, there are requirements from a number of 3PLs which, if satisfied, will provide a welcome boost to market demand.

Industrial market rents have not seen significant rental growth and prime rents for small distribution warehouses around 10,000 sq ft, located in immediate proximity to motorway junctions, are in region of £5.50 and £6.25 psf. Secondary and tertiary warehousing and former manufacturing space across Greater Belfast, with eaves heights of 6 metres plus, are achieving £3.75-£4.50 psf, dependent upon location, configuration and specification.

Investment

There is a limited supply of institutional grade industrial product in Northern Ireland and a corresponding lack of transactional activity. This is despite a demonstrable appetite from a range of family trusts, property companies and opportunity led funds for a combination of individual properties, multi-let estates and build-to-suit assets. The only major industrial sale of note was a build-to-suit property of 85,000 sq ft in Armagh, leased to Bunzl plc, which traded at a price of £6.3 million, reflecting a NIY of 7.28%. Other assets sold during 2019 were typically small individual buildings or industrial blocks with short-term certain income profiles reflecting double digit returns and capital values at or below actual build costs.

NORTHERN IRELAND

2 2

SILVERWOOD BUSINESS PARKFormer Michelin Factory, 190 Raceview Road, Ballymena


Address/Site Size (sq ft) Tenant Landlord

Silverwood Business Park, 190 Raceview Road, Ballymena 129,000 TST Logistics Silverwood Business Park Limited

Silverwood Business Park, 190 Raceview Road, Ballymena 26,500 Stericycle Silverwood Business Park Limited

Silverwood Business Park, 190 Raceview Road, Ballymena 6,000 Alexander Dennis Silverwood Business Park Limited


23

CAPITAL MARKETS

Volumes and returns

According to PropertyData, provisional investment volumes for the wider industrial sector reached £7.6 billion in 2019, down 14% on last year’s second highest performance on record, and in line with the five-year annual average. However, we expect these figures to be slightly revised upwards as more transactions are confirmed.

This partial slowdown has allowed some overseas buyers to capitalise on some of the opportunities that arose due to lower competition from national funds. Investors are

continuing to take development risks to secure an edge on the market, but these types of transactions are now coming from a smaller range of buyers.

Total returns for the 12-month period to the end of Q4 2019 reached 6.9%, driven by a 2.4% capital growth and a 2.9% rental growth. This is off the back of an astonishing performance which saw the sector’s total returns topping 19.6% and 16.4% in 2017 and 2018, respectively. This followed a 7.3% total return recorded in 2016.

Investor landscape

The investment landscape in the UK has remained very fluid with demand coming from a wide range of investors. Overseas buyers were increasingly active towards the latter part of the year, whilst UK institutions took a pause, following a very acquisitive period in 2017-2018.

The long-term upside potentials that the industrial sector has on offer is just one of the key factors which have been driving the performance of industrial assets. More importantly, increased online spending, strong occupier demand, reversionary potentials with

asset management opportunities and the lack of development land, in some markets, have all contributed to the attractiveness of this asset class.

In addition, global multi-asset investors have continued to increase their allocation into the industrial sector to gain indirect exposure to household spending and the positive structural change, underpinned by increasing online spending. We expect this trend to strengthen in 2020 as occupier activity remains strong.

Industrial investment volumes (£m)

12,000

10,000

8,000

6,000

Inve

stm

ent (

£m)

4,000

2,000

0

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Q1 Q2 Q3 Q4 5yr avg (2014 -18)

Source: Property Data

2 4

Industrial yields

Whilst the pace of investment activity lost momentum in 2019, pricing has remained stable and strongly covenanted, RPI linked, long-let assets continue to be highly attractive to annuity funds, core investors

and international buyers alike. As a result, prime yields are now at around 4.4%, whilst secondary yields have moved out by 15/25 basis points (bps) as investors re-position their portfolio for prime opportunities.

Outlook

Looking forward, investors will continue to search for yields in a low-rate environment, driving further capital growth for the sector in 2020. We expect London assets to capture

most of this upside and the market will see more national portfolio transactions as international buyers look for ways to enter the UK industrial sector.

Address/Site Sale price - £mNIY (%) Buyer Seller WALT (WAULT) Notes

Tudor Portfolio £241m (3.90%)

Thor Capital &Morgan Stanley SEGRO 6.00 yrs Seven large distribution

warehouses

Echelon Portfolio £75.4m (6.68%) Warehouse REIT AVIVA 5.30 yrs

Seven large distribution warehouses and one

multi-let estate

UK Urban Industrial Portfolio

c.£200m (sub-5.5%) Starwood Capital Barings Real

Estate Confidential10 industrial estates

located in core markets in the UK

Turbine Portfolio £38.35m (4.35%) Savills IM CBRE GI 6.90 yrs

(3.40 yrs) Three South of England

multi-let estates

Yield gap (bps) Secondary yieldPrime yield

Prime and secondary industrial yields

Source: Colliers International, MSCI

25

2009

Q4

80011.0%

70010.0%

6009.0%500

8.0%400

7.0%300

6.0% 200

Yiel

d ga

p (b

ps)

Indu

stria

l yie

lds

5.0% 100

4.0% 0

2010

Q1

2010

Q2

2010

Q3

2010

Q4

2011

Q

120

11

Q2

2011

Q

320

11

Q4

2012

Q

120

12 Q

220

12 Q

320

12 Q

420

13

Q1

2013

Q2

2013

Q3

2013

Q4

2014

Q

120

14 Q

220

14 Q

320

14 Q

420

15

Q1

2015

Q2

2015

Q3

2015

Q4

2016

Q

120

16 Q

220

16 Q

320

16 Q

420

17

Q1

2017

Q2

2017

Q3

2017

Q4

2018

Q

120

18 Q

220

18 Q

320

18 Q

420

19

Q1

2019

Q2

2019

Q3

2019

Q4

BIG YELLOWWyvern Industrial Estate, New Malden - £28,000,000

COLLIERS CAPITALBelron UK Ltd, Bardon Business Park, Coalville - £17,300,000

CABOT PROPERTIESUnits A & B, Logistics City, Basingstoke - £16,500,000

PICTON CAPITALDHL, Magna Park, Lutterworth - £16,900,000

INFRARED CAPITAL PARTNERSLefa Business & Industrial Park, Sidcup – £19,000,000

CAPITAL MARKETS TRACK RECORD

CABOT PROPERTIESPinnacle 15, Northampton – £19,050,000

2 6 27

All information, analysis and recommendations made for clients by Colliers International are made in good faith and represent Colliers International’s professional judgement on the basis of information obtained from the client and elsewhere during the course of the assignment. However, since the achievement of recommendations, forecasts and valuations depends on factors outside Colliers International’s control, no statement made by Colliers International may be deemed in any circumstances to be a representation, undertaking or warranty, and Colliers International cannot accept any liability should such statements prove to be inaccurate or based on incorrect premises. In particular, and without limiting the generality of the foregoing, any projections, financial and otherwise, in this report are intended only to illustrate particular points of argument and do not constitute forecasts of actual performance.

Colliers International is the licensed trading name of Colliers International Property Advisers UK LLP (a limited liability partnership registered in England and Wales with registered number OC385143) and its subsidiary companies, the full list of which can be found on www.colliers.com/ukdisclaimer. Our registered office is at 50 George Street, London W1U 7GA.

This publication is the copyrighted property of Colliers International and/or its licensor(s). © 2020. All rights reserved.

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