prime logistics bulletin

‘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.”


A wall of capital continues to target the sector, and in a market where there is relatively little stock available to buy, this has led to further yield compression during the quarter, with prime yields falling in 24 out of 49 centres. The relative paucity of new space being built, combined with the ongoing interest from major overseas and domestic investors, means prices are expected to remain keen for the foreseeable future.

Investors remain compelled by the occupational fundamentals underpinning the sector, not least of which is an imbalance between supply and demand that is putting upward pressure on prime rents. Gerald Eve is forecasting average growth in prime rents across all regions of 2% over the next five years as a result.

John Rodgers, partner at Gerald Eve, said: “The prime logistics story is a compelling one, and investors remain keen on the sector, especially for new product in the best locations. A number of the marketplace’s leading names have sought new finance – through loans, rights issues and institutional capital – or entered JVs to enable them to move quickly as and when rare prime opportunities for investment become available.

“It is the large scale portfolios or industrial parks of critical mass – which offer investors substantial exposure to the sector – attracting the most interest, and arguably attracting a premium as a result.”

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.