On the 27th of November, a room full of industry experts discussed what the future had in store for the industrial and logistics sector. Their discussion was expertly chaired by three moderators, two of whom (Paul Burke and Chen Ikeogu) are partners at Maples Teesdale.
A number of issues were discussed including multi-level uses and the possible development in London of multi-story sheds. As part of this discussion Cameron Fraser, director of Marchmont Investment Management, said he expected that many more deals would be done in cubic feet, rather than rent per sq ft on the ground floor. “Typically mezzanine floor space [is 50% of the rent] – we are now seeing 100%".
Five Key Trends
The discussion highlighted five key trends as affecting the industrial and logistics sector:
(1) first, was rising development with 10.1m sq ft of speculative developments announced this year compared with 8m sq ft in the last peak of 2015;
(2) second, was a flattening of investment with 2018 being a record year for investment volumes with certain "political turbulence" reducing investment volumes to be lower;
(3) third, was Brexit with David Binks, head of leasing at St Modwen Properties, saying Brexit would offer a mix of challenges and opportunities: “The potential disruption to supply chains, the risks to our customers in terms of their business models… these may have a negative impact for us. But equally, some of our customers have been on the phone to us in the past few months, as the volume of Brexit uncertainty rises, asking if we have space that could accommodate short-term, backstop-type buildings.”.
Richard Moffitt, chief executive of Urban Logistics REIT, noted that some investment decisions had been put on ice, particularly from grocers in the big-box space. “We are seeing evidence now of those decisions being put on hold,” he said. “I am not forecasting a significant downturn in that respect but there is a short-term blip.”.
The Summit was on the 27th and events at Westminster have been adrenaline-fuelled for politicians and political journalists but are unlikely to have calmed investment nerves in the wider market;
(4) fourth, was retailer demand with the growth of online shopping. A general and growing demand for more warehousing space over the next 2 years was identified
Who braves the public transport system or the roads to travel to John Lewis when you can go online to buy the latest Nespresso coffee machine and get it delivered the next day (or even the same day for an additional fee) to your door or local click and collect depot?; and
(5) fifth but by no means last, was a narrowing of vacancy rates with a vacancy rate of 6% being quoted but regional differences existed with the rate in London and the South East falling to 3.5%. This was expected to drop even further. In contrast, the West Midlands had the highest supply.
The industrial and logistics sector faces a number of challenges going into 2019 but, as so many have said before, every challenge is an opportunity.
The logistics sector is in a state of flux. The rise of automation, self-driving cars, last-mile deliveries and political pressures are among the factors compelling industry players to reconsider their operations in a rapidly changing market.