How warehousing has become the darling of British property
Ten years ago, when I was head of a property investment and development company, I agreed a 30,000 sq ft letting at a double warehouse facility in North Lanarkshire. I recall it was noted as one of the largest industrial lettings in the West of Scotland that year reaching the heady heights of £3.00 per sq ft.
The building, which sat on a 15-acre estate, had the unique benefit of a 20tonne gantry crane. Its high bay design was symbolic of an era when heavy industry in that part of the country was commonplace. It was ideally suited to the UK’s largest independent steel plate stockholder, Eterniti, who took occupation. And it was a major boost for many of the local skilled workers who had been made redundant following the closure of Corus Steel’s nearby mill.
The wider estate was a mixture of light and heavy industrial uses. It was more than a little rough around the edges with noise of nearby coal trucks being hauled and a stench to go with it. How times have changed. These types of sites still exist, of course, but warehouses have taken on an altogether different complexion.
Where once they were thought of as the grubby sibling of their shiny office brothers, now UK and overseas investors are tripping over themselves to snap up a warehouse. Sub-5% yields are commonplace at a time when high street shops have been forced to close and offices face an uncertain future. Institutions and investors are switching to UK logistics.
The rise and rise of online shopping is at the epicenter driving up demand for floor space across the UK. According to the Office of National Statistics, 36 per cent of retail sales were made online in November compared with 19 per cent in February. This has sent e-commerce giants like Amazon and Ocado scrambling for warehouse space to meet customer demand. Retailers with strong online presences such as Next or BooHoo are not far behind. A series of UK-wide lockdowns has only served to further turbocharge an already booming area of the market, sending rents skyrocketing and yields plummeting.
Investment in Scotland’s industrial market hit an all-time high last year with investors pouring in £450m. That’s an increase of 43% on the previous year according to CoStar’s latest investment data. The pick of the deals was the acquisition in September of Amazon’s main Scottish fulfilment centre in Dunfermline for £63m (a 4.75% yield) by South Korean institution KB Securities. In Edinburgh, meanwhile, Ribston snapped up Prestonfield Park for £14.45m. The 4.96% yield on that deal is understood to be a record low for a prime multi-estate in Scotland.
Our commercial agency in Edinburgh will shortly be bringing to market for sale a vacant 2,030 sq ft warehouse in the city’s Sighthill Industrial Estate. It is being sold with the benefit of vacant possession, so I expect there to be keen demand from owner occupiers and investors alike. Away from the mega-sheds the smaller end of the market is performing well. Industrial rents in general are rising faster than office rents in Scotland’s capital with smaller units driving the surge.
Warehouses now provide a crucial part of the national infrastructure. It’s a far cry from my early experiences.