IPF Publishes Research into Occupier Trends in Logistics

The increased demand and evolving nature of operator demands for logistics space have been transformational in the design and delivery of the built product by developers and investors. An IPF study by Darren Hall, of Scoptima supply chain consultancy, and Real Estate Strategies, led by Malcolm Frodsham, considers the implications for investors over the short- to medium-term.

Findings from their research include:

• The sector should provide significant development opportunities, as well as a source of long income streams, as operators favour new, larger units.
• Demand for next/same-day delivery has increased the importance of proximity to parcel sortation hubs, so favouring the Midlands’ ‘Golden Triangle’ and along the M62.
• Increasing adoption of automation and robotics is leading to larger units, with increased eaves heights, greater floor loading capacities and higher power levels.
• Labour shortages are having a major impact on operating productivity and capacity, especially in DCs clusters, where competition for workers can be fierce. Operators are being deterred from locations with very low unemployment rates; 24-hour public transport services, parking spaces and attractive working conditions are all becoming increasingly important.
• Ultra-Low Emission Zones and congestion charging are placing a premium on well-located sites on the periphery of large urban areas; facilities with multi-level vehicle access will be the future of these sites to maximise their potential.
• Short construction periods and a high proportion of pre-let development contribute to low rental volatility in the sector.
• Logistics assets are attractively priced relative to long-dated bonds to deliver strong risk-adjusted returns to investors.
• Little regional differential in performance is expected, with stronger rental value growth in London already priced into this market.
• For investors with exposure to occupiers that are downsizing, such as high street retailers, flexibility in design, to allow the addition of space and/or sub-division of units, should improve tenant retention.
• Given the relatively large size and single-let nature of newer units, a portfolio approach will be necessary to diversify specific risk.

Co-author, Malcolm Frodsham commented: “Design-and-build logistics schemes offer relative low risk development returns but investors should be much more cautious of taking on speculative development risk.  For longer-term investors, the check-list for stock selection should include labour availability, flexibility for both expansion and sub-division, proximity to hubs and units with sufficient eaves height to accommodate automation.”

The Full Report and an At a Glance summary of the research are available for download from the Resource Library.

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