One-hour delivery service Amazon Prime Now driving new space requirements
Amazon’s rapid expansion has seen the internet retailer responsible for one fifth of all large warehouse lettings during 2016, according to the latest research from real estate consultancy Gerald Eve.
The firm’s 2016 Prime Logistics report – which analyses the UK’s 50,000 sq ft plus warehouse market – reveals that Amazon has signed leases for some seven million sq ft of space so far in 2016, 19% of the total lettings for the year to date. The company’s dominance was particularly pronounced during Q3, when Amazon took 3.4 million sq ft of new space, a quarter of the 13.8 million sq ft of total lettings.
Amazon’s leasing spree has been driven by the internet retailer’s wider expansion – and the need to fulfil new shipping options such as Amazon Prime Now, which guarantees one-hour delivery in certain areas and requires extensive facilities close to population centres. Amazon recently announced an expanded partnership with supermarket Morrison’s, under which groceries are available in London and the South East within a one-hour delivery timeframe.
Richard Ludlow, partner at Gerald Eve, said: “For one company to be responsible for a fifth of all lettings is remarkable – all the more so given Q3 saw the highest-ever quarterly take-up, putting 2016 on course to be the strongest year for the industrial occupier market we have recorded.
“Despite the uncertainty created by the Brexit vote in June, occupier demand for warehouse space remains strong, and it is online retailers such as Amazon that are underpinning this interest. The strength of this demand highlights just how robust the sector’s future prospects are.”
The demand currently seen in the sector is contributing to a compelling investment story. Strong occupational interest, a judicious approach to speculative development by developers and investor requirement for cash-generating assets have seen a wall of money targeting the large warehouse market. As a result, while average UK prime yields ticked up slightly in Q3 to 5.8%, it was the first time they had moved outwards since the end of 2010.
First produced in 2006 (analysing the 2005 market), Gerald Eve’s Prime Logistics focuses solely on industrial warehouse properties of 50,000 sq ft or more in size.