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Warehouse
Completions by Type (Design & Build / Speculative - 2003-2008 (%)
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Growth in the
warehousing and distribution sector has been significant in recent
years, underpinned by strong growth in capital spending in the
retail and distribution sector, with a number of retailers
investing in additional floor space to improve sales and
productivity. With some 150 million sq. m. of warehouse stock, the
UK is one of the largest logistics markets in Europe. Of this,
around 22% of space is in London and the South East and about the
same proportion in the Midlands regions.
Demand for warehouse
premises has remained high up to 2007, particularly for large,
strategic warehouses, as companies sought to consolidate their
supply chains.This development was strongly tied to continued
expansion in retailing activity, and, in particular, the growing
popularity of bulk retailing and online retailing. Speculative
development continues to account for the majority share of all
warehousing development with around 65%, compared with design and
build and this trend has grown over the past 3 years, as the chart
(left) shows.
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Available warehousing floor-space
stood at over 21m sq. m. in late-2008, with a gradual increase in
availability over the past couple of years. Speculative development
completions were stronger in 2007 than in any other year in the past
decade. However, 2008 has seen speculative build levels declining due to
the abolition of empty rates relief and the reduction of available
speculative finance, with many banks now only providing funding if the
developer has pre-let part of the scheme.
The deteriorating economic outlook, slowing consumer
markets and declining business confidence across Europe has impacted on
the warehousing sector as 2008 progressed. As a result, the supply
pipeline is likely to become more restricted in future as finance becomes
more difficult to obtain.
Given the effects of the ‘credit crunch’ on the wider
economy, the impact on warehouse property markets and on new development,
in particular, will become more apparent going forward in the amount of
new construction activity. The recent decline in retail construction
which almost inevitably will continue throughout 2009 will also affect
the warehousing sector.Private warehouse construction output could have
declined by as much as 20-25% in 2008 to reach around £1.8bn (from £2.4bn
in 2007), with further falls of around 10-12% expected in 2009, with no
significant growth in warehouse construction anticipated before 2011.
The economic
downturn is re-shaping the warehousing market in the UK as the
manufacturing, retail and logistics sectors seek to move to low cost
locations, creating rental growth in many regional cities. Manufacturers
are likely to continue moving their operations to lower cost locations in
the foreseeable future, thus ensuring a steadily growing demand for
logistics property.
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