Warehouse property - what’s in store for 2018?

UK

Richard Pickering, head of UK Futures Strategy

For the past year, the UK has been in a surreal holding pattern. We know that we are going to leave the EU, but we don’t know what form that will take. Businesses have been sitting on their hands, glancing at each other across the start line. And the property markets, well past the end of a typical seven-year cycle, have been quietly wondering how much longer we’ve got.

By comparison, 2018 is likely to be a year for action. We are starting to get some shape to key negotiations with the EU and Theresa May’s fate is tied to these. There will be no pleasing everyone on Brexit, and the likely result is a soft fudge that will please no one. Markets would, however, welcome a benign economic outcome, and combined with further rate rises we may see the pound rally somewhat. Banks will take space in the EU, but it will be small deltas, rather than exoduses.

There are some clear trends in all sectors that are likely to persist. Digital automation will continue to eat away at roles. Proptech is starting to get real; and new platforms and analytical tools will raise efficiency and transparency in real estate; however, I predict a few white elephants along the way. The serviced office sector is getting hot and everyone wants in – and we’ll see the launch of new propco branded products. In retail, watch out for more innovation, new online-to-offline offerings, and RFID playing a key role in supply chain reorganisation.

In all markets smart buyers will be more discerning, with prices reflecting greater caution. Watch out for more M&A and consolidation among property companies and there is even potential for the UK’s first smart city to be targeted by a tech-co.

Logistics & Industrial

David Binks, Head of UK Logistics & Industrial Agency

The Logistics and Industrial markets will continue to perform well this year. In the logistics sector the underlying structural changes to the market will be driven by the ongoing growth in online retailing. In order to meet their customers’ expectations, occupiers will need to adapt their networks to accommodate different working practices, new technologies and to handle reverse flows.

We anticipate demand will return to longer-term average trends as some occupiers have now established networks and are focused on bringing them on-stream.

One of the key trends will be the continued growth in last mile urban logistics as occupiers seek to establish locations within a major urban area from which to consolidate and deliver to customers and shorten the timescale between order and delivery. The parcel sector will continue to grow with the growth of online retailing.

The Midlands will remain a focus for a significant proportion of this demand, however, other locations close to major population centres with good land, labour and power availability will also benefit.

In the industrial sector, whilst uncertainty over Brexit may continue to unnerve occupiers, the prospects of reshoring production, adapting to advances and changes in technology will drive further industrial demand, and we anticipate this will continue in line with 2016 and 2017 take-up rates. 

Supply of new product will remain constrained across most size ranges as land for new development remains very limited.

There will be continued upward pressure on rents in key locations where supply is most limited and our expectation is that this will be in the order of 2% - 3% on average.