Neil Higson of Wildbrook recently took part in a roundtable discussion on Industrial and Logistics, along with experts in the sector. This was kindly organised by Insider North West and sponsored by DAC Beachcroft.
It is clear that confidence is returning and investor sentiment is improving from where it was in 2023, and 2024 showed signs of this improvement.
Wildbrook have been active during 2024 and remain positive over the Industrial and Logistics sector, feeling that there is a LOT more to come in 2025 from both an occupational and investment perspective. The fundamentals of the Industrial and Logistics sector have been supercharged since the COVID global pandemic and is therefore an in-demand asset class for most investor types.
The commercial property market generally was struggling to find momentum amid an increasingly difficult macro backdrop during Q4 2024, seemingly weighing on market activity. However, the November 2024 RICS ‘Economy and Property Market Update’ summarises that the general macro backdrop is turning a little more favourable for property markets.
Across the occupier market, tenant demand was largely stagnant at the headline level in Q4 2024. According to the Q4 2024 RICS UK Commercial Property Monitor, the retail sector saw its reading slip from a net balance of -4% to -12% from survey recipients. Meanwhile, a net balance of +7% of survey participants saw an increase in demand for industrial space.
Availability was reported as broadly unchanged across the industrial sector. Recent research from Savills suggests that occupiers remain active but are driven by more strategic reasons than business growth alone. This is slowing down decision making and therefore slowing transaction volume, in addition to the usual borrowing costs, land values, planning delays, build costs etc.
For the twelve months ahead in 2025, the rental outlook remains varied at the sector level. On the stronger end of the scale, a net balance of +55% of respondents foresee prime industrial rents moving higher.
The UK average prime headline rent for mid-box and multi-let units reached £15.15 per sq ft by the end of 2024, up 4.3% on a year on year basis. Meanwhile, the average rent across the UK for large distribution warehouses (100,000+ sq ft) rose to £11.50 per sq ft, reflecting a 5.4% year on year increase.
In the North West, prime rents hit £11.50 per sq ft in 2024, with a significant annual growth of 15% reflecting the ongoing demand for high quality units. This will continue for ‘best in class‘ assets in the region.
Some completed occupier deals in Q4 2024 included the letting of Unit A05 Vista, Manor Lane, Hawarden to Sister & Seekers on a 10 year lease at £8.75 per sq ft. The 33,000 sq ft unit benefits from 7.5m eaves height internally, 3 phase power supply, 2 x ground level loading doors and secure 25m deep fenced yard to the front.
T.K Components Ltd agreed to take 61,164 sq ft at Vithal House, Parkway, Denton, on a 10 year lease at £8.95 per sq ft. There is a tenant break option and upward only rent review at year 5. The unit benefits from 2 x ground level loading doors, a 20% office content over two storey internal accommodation, and a 35m depth secure yard on a site area of 3.23 acres.
K53, Acornfield Road in Knowsley, to 3PL company MAC Logistics on a 5 year lease at £9.00 per sq ft. The 52,947 sq ft new build unit is rated EPC A and BREEAM Very Good.
Imperial 75 at Kingsway Business Park, Rochdale, was leased to Solotech at £9.50 per sq ft on a new 10 year lease with 5 year upward only rent review. The 76,418 sq ft new build unit benefits from 10m eaves height, with 45m yard depth, 6 x dock level loading doors and 2 x ground level loading doors.
The North West industrial and logistics market saw a return to growth in 2024 with occupier take up reaching 4.8 million sq ft, marking a 7.5% increase on 2023 and surpassing the five year pre-pandemic average according to the latest data from the Knight Frank, North West: Logic report. The outlook for 2025 is equally strong with prime rents forecast to rise by 4.5% across the North West and 5.7% in Manchester, underlining the region’s strong market fundamentals.
Capital values appear to have largely bottomed, with the favoured sectors, namely retail and industrial, returning to quarter-on-quarter growth over 2024. The industrial sector in the North West continued to be one of the best performing and most attractive property sectors, with robust investor demand and continued rental growth. With higher interest rates the core income deals are less transacted and the buyer pool for long income producing assets remains shallow, whereas it is the reversionary or ‘value add’ potential that is driving investment activity within the industrial sector.
The industrial and logistics sector benefits from strong fundamentals, including the continued expansion of the e-commerce market and ongoing risks to international supply chains, which are prompting increased use of local suppliers or a need to hold additional stock. In recent years warehouse growth has gone hand in hand with growth in e-commerce and the diverse range of logistics responses required to support it. The ratio is not static and the quantum of warehouse floor space required per home is likely to continue to grow over time. There is presently 69 sq ft of warehouse floor space for every home in England. If this relationship were to continue this would mean 25.5 million sq ft of additional warehouse floor space is required each year to match the new Government’s annual target of 370,000 new homes.
Manufacturing is up and in the North West this has been notable, along with distribution take up. Demand for ‘urban logistics’ facilities continues to exceed current supply, as much from online only ‘pure-plays’ such as Amazon, as multi-channel operators looking to optimise delivery efficiencies.
With a slowdown in new development and a lack of Grade A supply, it is anticipated that further competitive tensions from occupiers trying to secure best-in-class units will take place, leading to upward pressure on quoting rents during 2025. There will continue to be a place for refurbishing older stock and improving secondary assets, including EPC ratings. Industrial and logistics assets are able to meet ESG targets quicker and more cost effectively in comparison to other sectors such as offices.
Investors continue to seek out opportunities in the market, not least because UK commercial property remains attractive versus global peers and fixed income securities (medium to longer term), and the tenant market remains resilient, even in the face of a cost of living crisis the annual returns of UK commercial property do remain attractive. Even where there may be uncertainty in the market, if investors can take a long-term view, then the trends show that they should be rewarded.
Wildbrook continue to remain active in the industrial and logistics sector with assets currently under offer, recently completed and with a pipeline of acquisitions and sales for Q2-H2 2025. We are active in the Industrial Open Storage (IOS) sector with assets currently available and coming to the market.
Please get in touch with us should you wish to discuss a sale opportunity or if you have an investment requirement to satisfy.
We are also active in the sale and leaseback market so if you are a business owner and wish to release capital through an asset sale to reinvest in to your business or for retirement planning, please do get in touch for a free appraisal.
