MARKET FOCUS:

INDUSTRIAL

Despite the uncertainty of the past 12 months, demand for UK Industrial and Logistics space has continued to grow and has fared better than many other commercial property sectors. The forced shift to online deriving from Covid-19 containment has amplified e-commerce and led to rapid growth in demand for last mile / urban logistics. This has placed significant pressure on traditional logistics space in and around town centres.

Whilst South Wales is not a main retail distribution market, this changing shift in shopping habits has gathered momentum locally and created new requirements for mid-size units. There is no one-size-fits-all solution, but an essential component is proximity to customer base in order to offer fast turnaround times. There currently is a shortage of good quality storage and distribution properties across the region, with companies like DPD having to purpose build its new 60,000 sq. ft. warehouse in Swansea, while others such as DX have had to adapt existing warehouse space in Bridgend and Newport.

The lack of good quality stock has not only encouraged logistics operators to consider new build, but also more traditional industrial owners. It is interesting to note that national operators are not baulking at the higher headline rents required, as acquiring the right building in an optimum location is essential to their business. This has provided developers with added confidence as to the viability of larger scale industrial development and has continued to improve as rental levels have increased to over £6 per sq. ft. Development to date has been limited to distribution/last-mile logistic facilities with 50,000 sq. ft. developed at St Modwen Park, Newport, which was let to Amazon. St Modwen are currently on site speculatively developing a further 30,000 and 100,000 sq. ft. that will be available in 2021. Similarly, Trebor Developments are progressing the speculative development of 46,000 sq. ft. at Junction 35, Pencoed and last year Border Group completed the construction of 50,000 sq. ft. in Crumlin, Caerphilly that has since been let.

Source: Knight Frank

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In addition, development of smaller workshop and business units of up to 1,500 sq. ft. has been continuous. This type of development is typically built in phases and on sites of between 1 and 2 acres. The design and layout of the product, centres on occupiers who do not require large amount of circulation and deep loading yards. Local companies that want to own their own property is the main source of demand for this product and sustained demand is driving up capital values.

Many developers though have chosen to retain an interest and units of this type have let well when offered to market. For example, in a development close to Junction 32, six units of between 1,000 sq. ft. and 1,500 sq. ft. were constructed. Five of the units let before practical completion at a headline rent of £10 per sq. ft. although occupiers will look at the actual monthly running costs which is more important to them as they grow their business. The cost reflected the quality of the product on offer, proximity to the M4 Motorway and flexibility of space allowing for specific tenant fit out.

Source: Knight Frank

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