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Warehousing Construction Market Report - UK 2014-2018 Analysis

Published: 20/11/2014 / Number of Pages: 66 / Price: £745.00

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Introduction and Overview

AMA are pleased to announce the publication of the 2nd edition of the report 'Warehousing Construction Market Report - UK 2014-2018 Analysis'. The report should be of particular interest to developers, occupiers, logistics companies and construction professionals and provides a comprehensive review of the warehouse property sector.

Key areas in the report:

  • An overall review of the UK warehouse sector with forecasts for development over the next few years.
  • A review of warehouse occupiers by end sector - retail, logistics, B2C and manufacturing sectors.
  • Assessment of warehouse construction output, together with forecasts for growth up to 2018.
  • New developments - Rail Freight Interchanges, DIRFT III, London Gateway etc.
  • Review of the key issues of demand, availability, take-up rates, rents and speculative construction for the regional warehouse markets in Greater London, South East & East, South West & Wales, East & West Midlands etc.

Areas of particular interest:

  • Review of the warehouse development/construction pipeline across the UK - key schemes currently under construction and those expected to complete during 2018.
  • Review of impact of changing retail patterns - rise in e-commerce and online shopping and its impact on distribution networks - focus on growing importance of regional locations or 'hubs'. The switch from traditional store retailing to online retailing is leading to a significant structural change in the warehouse sector, with a two-tier market becoming established which combines smaller distribution centres close to urban markets supported by remote and larger distribution centres purely for internet sales.
  • Outlook for warehouse demand and development activity to 2018 - Rail Freight Interchanges/Terminals, e.g. DIRFT, East Midlands Gateway, Castle Donnington, Radlett etc.
  • Key drivers of demand for warehouse space - including key econonomic indicators; retail sales and consumer spending; the 'green agenda' and demand for higher performance or sustainable buildings; and the problems of land shortages and planning delays.
  • Details of the activities and projects of leading contractors operating in the warehouse sector.

The Warehouse Market in the UK

  • Value and size of the Warehouse Market in the UK - trends since 2008, mix between Speculative and Design and Build 2008-14.
  • Warehouse Occupiers by End Sector 2014 - food, non-food, logistics, manufacturing - share, growth sectors.
  • Detailed analysis of the Retail Warehousing Sector - development pipelines - proposed, with consent, under construction 2008-14 - recent trends and future prospects.
  • Warehousing Market - demand, availability, take-up rates 2009-13, rents and speculative development - key market influences, major clients, impact of motor industry, changing freight requirements and impact on storage demand.
  • Regional Warehouse Markets - Greater London, South East & East, South West & Wales, East & West Midlands and North East & Scotland. Property space availability and share by region in 2014.
  • Distribution of Freight in the UK by Road, Rail, Water and Air, and the impact on warehouse space.

Construction Market for Warehouses

  • Value of Total Construction New Work Output in the United Kingdom 2014-18.
  • Construction Output in the Warehouse Market - value from 2007-14 and forecasts to 2018 - recent growth, key drivers, schemes, sectors.
  • Warehousing - New Development Pipeline - developments since 2008.
  • Warehousing - Regional Development Pipeline - 50% of speculative developments in the South East - space under construction, availability by region, key drivers and future prospects. Daventry, London Gateway, Stockley Park, Heathrow, Scotland, Doncaster, Westcott etc.
  • Warehousing - Speculative Development - space under construction 2008-14, split by region 2014. Principal schemes - key developers, schemes, sizes, status, completion etc.

Key Issues Affecting the Warehousing Sector

  • Land and planning issues.
  • Economic Indicators - Manufacturing Output, Consumer Spending & Inflation.
  • Legislative Drivers - Energy Performance of Buildings Directive; Empty Rates Relief; EU Working Time Directive - impact on warehousing sector.
  • E Commerce and Warehousing - online retail spending 2008-18, freight changes.
  • Future prospects up to 2018 - market forecasts and overview of key influencing factors.

Construction Market Supply in the Warehouse Sector

  • Key Developers - major players: Prologis, Gazeley, DIRFT, SEGRO, Bericote, DP Ports etc.
  • Overview of leading Construction Contractors in the Warehouse Market - key contractors, scope of activity, key clients, recent projects etc.

Report Summary

After years of decline, confidence is starting to return to the warehouse market as developers respond to an improving economy, recovering levels of manufacturing and current high levels of demand for warehouse property. Improving market sentiment and a pick-up in economic activity has seen total demand for warehousing floor-space across all regions improve with take-up rising by around 28% in 2013. The balance of development has tipped back in favour of purpose built or 'build to suit' warehouse space. In 2014, many developers and occupiers active in the logistics and industrial sector remain relatively cautious and, as a result, new construction continues to be driven mainly by built-to-suit activity. In 2014, speculative development rose to around 2.1m sq. ft. from just 0.7m sq. ft. recorded at the same point in 2013, but still significantly down on the peak recorded in 2007 and 2008.

The market for warehouse property continues to be the strongest sector within the industrial construction market. Rents have been steadily rising in prime locations and the market is now beginning to expand from the traditional distribution areas of Heathrow and the Midlands to include regional locations in the South, South East, the North West and Scotland. This reflects changing patterns of distribution, driven by a combination of rising transport costs and occupier demand for cheaper locations. There continues to be good demand for larger distribution properties both from retailers and third-party logistics operators due to an acute lack of available space. This trend is likely to continue with the growth of internet shopping as retailers distribute their online sales from retail warehouse space. In addition, as internet sales continue to rise, they are anticipated to lead to a major change in the logistics market, as retailers invest in major warehouses developments purely for internet sales. A two-tier system has now been established in the UK warehousing sector, with more, smaller distribution centres close to urban markets being developed to fulfill express deliveries, which are, in turn, supported by remote and larger distribution centres purely for internet sales through which to replenish smaller urban warehouse hubs.

In terms of occupiers, retailers continued to drive the warehousing market in 2014, committing to large pre-lets and the importance of the sector is likely to continue through 2014 and 2015, driven by discount grocery retailers, such as Lidl and Aldi who continue to acquire more regional distribution centres to support their expansion plans. The manufacturing sector now accounts for a larger part of the warehousing market than in previous years, with increasing occupier demand now driven by a slight upturn in manufacturing output and, in particular, growth in the automotive export market. Take-up of warehouse space rose by 26% in 2013, driven by a stronger economy, improving consumer confidence and the continued demand for space from the e-commerce sector. After years of decline since the start of the global financial crisis, the warehouse sector is set to be a major beneficiary of the economic recovery. Confidence has already started to return and current levels of demand would suggest that take-up for 2014 take-up could exceed levels seen in 2010 and 2011. However, due to a lack of suitable grade-A space, occupiers have been increasingly turning to the second hand market to fulfill requirements - take-up of grade-A space registered at just 13.5m sq. ft. in 2013, the lowest level recorded since 2005-06.

Going forward, demand will continue to be strongest in the mid-range warehousing sector, driven by growing requirements of parcel operators and other occupiers serving the e-commerce industry; demand in e-commerce is such that this size band of warehouse will continue to increase in importance over the short-medium term. Availability levels of warehouse space stood at around 300m sq. ft. at the end of 2013, a fall of 17.5% on the previous year. Overall levels of supply declined as a result of a strong occupier market and the withdrawal of some lower quality stock from the market. Despite the overall volume of availability increasing slightly in H1 2014 following the release of a number of large buildings and the completion of various warehouse refurbishments, an acute shortage of and strong demand for warehouse space are expected to be a feature of the warehouse market for the rest of 2014 and into 2015. In addition, land supply remains extremely limited further constraining market supply over the course of the next 18-24 months. Developers have reported an increase in the number of occupiers switching from centralised distribution centres to a smaller, regional 'hub' model of warehouse. As the major supermarkets continue to improve their e-fulfilment networks and the need for quicker delivery times increases, competition for smaller, urban distribution hubs near cities, particularly in London - continues to grow. Food retailers are also adapting their logistics strategies for the convenience market.

On a regional basis, most areas of the UK have seen an increased level of activity in 2013 and 2014, with the traditional industrial markets in the Midlands and the North remaining the focus of activity. Greater London and the South East experienced rising activity in 2013 but take-up remained below trend levels in these markets due to supply constraints. In addition, the geographical bias of speculative development is weighted towards the Midlands, South East and the East of London, primarily driven by London's Gateway Logistics Park. After years of decline, warehouse construction is expected to have begun a steady recovery in 2014, in response to the economic recovery, an improving manufacturing sector, ongoing drive by retailers to streamline their supply chains and increased demand from logistics businesses serving the e-commerce industry. As a result, output is expected to grow by around 10% in 2014 and the warehouse sector as a whole is forecast to see a growth rate of around 25% over the next 5 years to reach £1.7bn in 2018. However, even by this date, warehouse construction is still expected to be 45% below its peak of £3.1bn in 2007. One of the key drivers of warehouse demand and development going forward is likely to be the growth of e-commerce and internet retailing, which has enjoyed phenomenal growth in recent years and shows no sign of slowing down. Due to increased online sales, the UK 'B2C' parcel market is forecast to grow by almost 5% per year, with home delivery volumes also increasing by between 3.5 and 4% a year to 2018 and, as a result, it is expected that there will be a continuing shift to home deliveries with an emphasis on depots around large urban centres.

The switch from traditional store retailing to online retailing is likely to cause a significant structural change in the warehouse sector, changing the type of space required, with a two-tier market becoming established, with more, smaller distribution centres close to urban markets to fulfill express deliveries supported by remote and larger distribution centres purely for internet sales (known as 'dark stores') through which to replenish smaller urban warehouse hubs. This is leading to retailers needing delivery facilities in multiple locations and the warehouse market is expected to see more speculative development of sheds of less than 250,000 sq. ft. in the suburbs, close to good road networks. Here the demand is high and stock levels remain acutely low. Beyond 2015 and up to 2018 the warehouse market is expected to grow year on year reflecting a recovery in the wider economy and the resulting effect on the industrial, manufacturing and retail sectors. However, the warehouse market continues to face a number of challenges including increased competition, increased expectations from customers, rising occupier costs and slender margins, an acute shortage of industrial land, particularly in locations close to major urban conurbations in some areas and planning delays.


List of Report Contents

  1. Contents Listing
  2. 1. INTRODUCTION 6
  3. 2. SUMMARY AND FUTURE PROSPECTS 7
  4. 3. THE WAREHOUSE MARKET IN THE UK 11
  5. 3.1 THE WAREHOUSING SECTOR IN THE UK 11
  6. 3.2 WAREHOUSE OCCUPIERS BY END SECTOR 12
  7. 3.2.1 Retail Warehousing 13
  8. 3.3 WAREHOUSE TAKE-UP LEVELS 15
  9. 3.4 WAREHOUSE AVAILABILITY 17
  10. 3.5 RENTAL LEVELS 19
  11. 3.6 DISTRIBUTION OF FREIGHT 20
  12. 3.6.1 Road Freight 21
  13. 3.6.2 Rail Freight 22
  14. 3.6.3 Ports & Waterways 24
  15. 3.6.4 Air Freight 25
  16. 3.7 REGIONAL ANALYSIS OF THE WAREHOUSING SECTOR 26
  17. 3.7.1 Greater London 28
  18. 3.7.2 South East & East 28
  19. 3.7.3 South West & Wales 29
  20. 3.7.4 Midlands 30
  21. 3.7.5 North & Scotland 31
  22. 3.8 OUTLOOK FOR THE WAREHOUSE SECTOR 32
  23. 4. CONSTRUCTION MARKET FOR WAREHOUSES 35
  24. 4.1 CONSTRUCTION MARKET OVERVIEW 35
  25. 4.1.1 Value of Output to 2018 - Construction New Work 35
  26. 4.1.2 Output by Sector 36
  27. 4.2 CONTRACTORS OUTPUT IN THE WAREHOUSING SECTOR 39
  28. 4.3 WAREHOUSING - NEW DEVELOPMENT PIPELINE 42
  29. 4.3.1 Speculative Development 42
  30. 4.3.2 Regional Pipeline 43
  31. 5. KEY ISSUES AFFECTING THE WAREHOUSE SECTOR 48
  32. 5.1 OUTLOOK FOR THE UK ECONOMY 48
  33. 5.1.1 Economic Indicators 48
  34. 5.1.2 Manufacturing Output 48
  35. 5.1.3 Retail Sales and Consumer Spending 50
  36. 5.2 ENVIRONMENTAL AND LEGISLATIVE DRIVERS 52
  37. 5.2.1 Energy Performance of Buildings Directive 52
  38. 5.2.2 Empty Rates Relief 53
  39. 5.3 E COMMERCE AND WAREHOUSING 54
  40. 5.4 LAND AND PLANNING 55
  41. 6. CONSTRUCTION MARKET SUPPLY IN THE WAREHOUSING SECTOR 58
  42. 6.1 OVERVIEW 58
  43. 6.2 KEY CONTRACTOR PROFILES 61
  44. 6.2.1 Bowmer & Kirkland 61
  45. 6.2.2 Buckingham Construction 61
  46. 6.2.3 Chalcroft 62
  47. 6.2.4 Clugston Group 62
  48. 6.2.5 Henry Boot 63
  49. 6.2.6 John Sisk & Son 63
  50. 6.2.7 McLaren Construction 64
  51. 6.2.8 Midas Group 64
  52. 6.2.9 Simons Group 65
  53. 6.2.10 Volker Fitzpatrick 65
  1. Tables & Charts
  2. CHART 1 WAREHOUSE COMPLETIONS BY TYPE (PURPOSE BUILT VS. SPECULATIVE) 2008 - 2014 (MILLION SQ. FT.) 7
  3. CHART 2 TAKE UP OF NEW WAREHOUSING BY SECTOR 2014 - BY END USE SECTOR (LOGISTICS, FOOD, OTHER RETAIL, FREIGHT/PARCEL, MOTOR ETC) 13
  4. CHART 3 RETAIL WAREHOUSE DEVELOPMENT PIPELINE (MILLION SQ. FT) 2008 - 2014 - PROPOSED, WITH CONSENT, UNDER CONSTRUCTION 14
  5. CHART 4 TAKE UP OF WAREHOUSE SPACE IN THE UK 2009 - 2013 GRADE A/SECOND HAND (M SQ. FT) 16
  6. TABLE 5 UK WAREHOUSE MARKET - RECENT MAJOR TAKE-UP TRANSACTIONS - CLIENT/LOCATION/FLOOR AREA 17
  7. CHART 6 AVAILABILITY/SUPPLY OF WAREHOUSE SPACE IN THE UK - GRADE A / SECOND HAND 2009 - 2013 (M SQ. FT) 18
  8. TABLE 7 WAREHOUSE PROPERTY AVAILABILITY BY REGION 2013 FLOOR SPACE (M SQ. FT.) 19
  9. CHART 8 DOMESTIC FREIGHT TRANSPORT BY MODE 2010-11 (%) 21
  10. TABLE 9 UK WAREHOUSING MARKET - REGIONAL ANALYSIS - AVAILABILITY, SPACE TAKE-UP, SPACE UNDER CONSTRUCTION AND RENTAL VALUES 27
  11. CHART 10 VALUE OF NON-DOMESTIC CONSTRUCTION OUTPUT 2009 - 2018 BY VALUE (£BN AT CURRENT PRICES) 35
  12. CHART 11 NON-RESIDENTIAL CONSTRUCTION OUTPUT ANALYSIS BY SECTOR 2014 - % BY VALUE 36
  13. TABLE 12 CONTRACTORS OUTPUT IN THE WAREHOUSING SECTOR - PUBLIC, PRIVATE SECTOR 2007-2018 (£M) 39
  14. CHART 13 VALUE OF WAREHOUSING CONSTRUCTION OUTPUT 2002-2018 (£BN) 41
  15. CHART 14 SPECULATIVE WAREHOUSE FLOOR-SPACE UNDER CONSTRUCTION 2007 - 2014 (SQ. FT.) 42
  16. CHART 15 SPECULATIVE WAREHOUSE FLOOR-SPACE UNDER CONSTRUCTION BY REGION 2014 44
  17. TABLE 16 PRINCIPAL SPECULATIVE WAREHOUSE SCHEMES UNDER CONSTRUCTION BY REGION 2014 SCHEME, SIZE, DEVELOPER, STATUS, COMPLETION DATE 47
  18. CHART 17 MANUFACTURING OUTPUT - ALL INDUSTRIES JULY 2013 - JULY 2014 (% CHANGE) 49
  19. TABLE 18 PERFORMANCE OF UK RETAIL MARKET 2008- 2018 (RETAIL TURNOVER £BN) 50
  20. CHART 19 RETAIL AND CONSUMER PRICE INDEX (RPI & CPI INFLATION) 2011 - 2018 (% CHANGE) 51
  21. CHART 20 ONLINE RETAIL SPENDING IN THE UK 2008 - 2018 (£BN) 54
  22. TABLE 21 LEADING CONTRACTORS SHARE OF INDUSTRIAL & WAREHOUSING CONSTRUCTION WORK IN 2013-14 (£M) 58
  23. TABLE 22 LEADING CONTRACTORS IN THE WAREHOUSING SECTOR - KEY CONTRACTORS, SECTORS OF ACTIVITY, KEY CLIENTS/PROJECTS 59

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