‘Amazon effect’ pushes leasing volumes above five-year quarterly average
Take-up of large industrial property grew by 5% during the second quarter of 2017, with deals totalling 11.3 million sq ft signed between April and June, according to Gerald Eve’s latest Prime Logistics quarterly bulletin.
Continuing strong occupier demand in the core West Midlands region – where 3.5 million sq ft was leased in Q2 – stood behind much of the increase, with the ‘Amazon effect’ pushing overall volumes over the five-year average.
The internet retail giant showed its importance to the industrial market with its acquisition of 33.5 acres at Central Park in Avonmouth for the development of a 2.2 million sq ft multi-storey warehouse. In the absence of this transaction, take-up would have been off the pace of recent levels of activity.
It was also notable that the average deal size fell to 138,000 sq ft, indicating the increased demand for smaller sheds for urban logistics facilities, and, to satisfy requirements for space by small to medium sized manufacturers.
Steve Sharman, research partner at Gerald Eve, said: “While quarterly volumes are up, looked at over a longer time period the occupier market has not been as robust as the record-breaking 2016, and at the half year point of 2017 overall demand has softened by 6% on the same period in 2016. In the absence of the Amazon development in Avonmouth, overall quarterly volumes would have been below par, but encouragingly, there would still have been a greater number of smaller deals agreed.
“After a few quarters of slowing development activity, we saw a range of developers start speculative construction during Q2, more than double the volume recorded in Q1. We are closely monitoring the void periods on all recently-developed schemes, as we are not seeing the same level of frenetic occupier interest in spec schemes that we saw at the end of last year, where several buildings were let whilst still under construction.”
Mark Trowell, agency partner at Gerald Eve, added: “Yes, Amazon is currently the occupier to watch, but it’s interesting that our research has also found an increased demand for smaller sheds during Q2. We are certainly seeing that in London and the South East, but the availability of sites and buildings that can be developed for urban logistics continues to be lost to higher value uses. It’s interesting that some developers are starting to look at innovative solutions such as multi storey buildings and the concept of ‘beds and sheds’ to adapt to this shortage.”