PRIME LOGISTICS

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PRIME LOGISTICS The definitive guide to the UK’s distribution property market Q4 2015 Bulletin

QUARTERLY SUMMARY • • • • • • •

Take-up falls 5% to 9.98 million sq ft in Q4 However, 2015 total of 44.4 million sq ft was the largest on record Amazon acquires 15 buildings totalling 2.4 million sq ft during 2015 Occupier choice remains limited but quality of supply improves 50% of all development starts in 2015 were speculative Prime yields stabilise as pressure to invest eases More prime investment opportunities expected in 2016 given speculative pipeline

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PRIME LOGISTICS The definitive guide to the UK’s distribution property market

E - U P O N R E CO Most Acquisitive Occupier 2015

Most Active Developer 2015

Amazon was the single most acquisitive occupier in 2015 taking 2.4 million sq ft

Prologis was the most active developer, starting over 2 million sq ft of space

RD Q4 TAKE-UP DOWN 5%

STRONGEST EVER YEAR

QUALITY OF CHOICE IMPROVES

Take-up during Q4 was 9.98 million sq ft, which whilst representing a 5% quarterly fall was still above the five-year quarterly average of 9.6 million sq ft. This pushed the annual volume of take-up to 44.4 million sq ft – the largest we have recorded and 5% up on 2014.

The types of occupiers taking space now compared to 2007 highlights just how much the nature of demand for industrial space has changed over the last few years. In keeping with the changes we are seeing in consumer shopping behaviour, supermarkets have largely been replaced with internet retail companies and discount retailers such as Poundland, Aldi and Amazon. Whilst the proportion of takeup represented by retailers and wholesalers is roughly the same as 2007, at around 35%, the business plans and logistics models of the modern occupier are very different.

The availability of logistics property has been incrementally falling since 2010. Little by little, space has been occupied and not replaced. However, such has been the response from the development market during 2015 that the availability rate for all qualities of building levelled-out at 6.8% at the end of Q4. The actual volume of space on the market, including speculative developments under construction, even posted a marginal increase.

It was activity in the East Midlands, particularly the Northern East Midlands, and, the North West which drove take-up during Q4. However, some of the largest deals which were agreed during Q4 were elsewhere as the 313,047 sq ft MK300 unit in Milton Keynes was let to XPO, Bibby acquired 281,000 sq ft at G Park Wakefield and Alloga UK pre-let 220,000 sq ft at Castlewood Business Park. However, it is Amazon who has stolen the headlines again during Q4, committing to 5 buildings totalling around 715,000 sq ft, including a 271,350 sq ft unit at the World Logistics Hub in Manchester. Amazon was the most acquisitive occupier of 2015, taking 15 buildings totalling 2.4 million sq ft. Planning applications for some of these buildings indicate that they may be used for the storage and distribution of food, an observation which supports the idea of these buildings being used for Amazon Fresh or Amazon Pantry, the online grocery arms of the business.

Take-up of floorspace for internet retail distribution (not including dedicated parcel delivery companies or 3PLs) totalled more than 5 million sq ft in 2015. This represents 12% of total occupier take-up for the year and is significantly up from the 3% recorded in 2009 as occupiers continue to take space and realign their distribution networks. With Euromonitor suggesting that the UK is forecast to generate over £18 billion in additional internet retail sales to 2019, and using the ratio established by Prologis that around 930,000 sq ft of additional logistics floorspace is taken to each additional £1 billion of internet re