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5 Things You Need to Know About Big Box Logistics In Q1 2024

The occupational market has got off to a sluggish start in 2024, with a combination of factors ensuring that the quarterly volume for new lettings reached just 5.6 million sq ft, that’s down 16% quarter-on-quarter and the slowest start to a year since 2019. However, there remains reasons to be positive as we move into the second quarter. 

Whilst the slowdown in occupier demand can be attributed to a number of macro-economic factors, ‘transaction friction’ has also increased significantly. Legal and ESG due diligence processes appear to be the main contributors, although C-Suite decision making is slower than it has been.

However, DTRE are currently tracking 7.6 million sq ft of logistics units that are under offer and should all those units complete by the end of June 2024 then take-up for the half-year will be 10% ahead of the “Pre-Covid” average.

Looking at Q1, the Midlands led the way accounting for almost 60% of all demand, split 40% East Midlands and 19% West Midlands, with Yusen Logistics’ 1.2 million sq ft pre-let at SEGRO’s Northampton Gateway accounting for 47% of the Midlands total.

In total, twenty-two deals signed across the first three months of the year, with 100,000 - 300,000 sq ft being the most popular building size, accounting for 77% of take up. Positively, particularly given the availability of assets in the 300,000 sq ft size bracket, take-up for bigger units was 14% ahead of the “pre-Covid” quarterly average (2007-19).

The level of supply and in-turn the vacancy rate has continued to creep up at the start of 2024, albeit it at a much slower rate than we saw throughout 2023. By end Q1 2024, the DTRE Big Box Vacancy Rate had only reached 7.2% up from 6.9% at the turn of the year.

However, we believe this will be the ‘peak’ vacancy and that the headline rate will trend downwards through the remainder of the year. There is only 7.6 million sq ft of new speculative development due to complete in 2024 – this will be the lowest level of new speculative completions of Big Boxes in seven years.

At the end of 2023, there were 24 assets available in the 300,000-400,000 sq ft size range; encouragingly 5 units are now under offer and with no significant new supply expected, this sector should see further decreases as the year progresses.

Finally, rental growth continues strongly and is being driven by the demand/supply dynamics that have underpinned industrial and logistics for the past ten years, rather than inflationary pressures. The latest MSCI Monthly Index for end March showed annualised rental growth of 6.9% for the industrial sector (see below).

Whilst rental growth had tracked closely with the UK’s CPI for much of 2023, by autumn it had de-coupled,  and we are now seeing real rental growth of 370 basis points over the latest annual CPI number of 3.2% for March.

The themes that have dominated the capital markets for the last twenty-four months continue to persist and whilst bouts of optimism have appeared over the first three months of the year, they have also receded just as quickly, as capital sits on the side lines awaiting a definitive signal from the world’s central bankers.

The result of this hesitancy in the capital markets has meant that just £1.1bn of industrial and logistics has traded over the quarter, down 21% on the 10-year ‘pre-Covid’ average (2010-19). Larger transactions and portfolios remain largely off the radar, and this is reflected in the fact that only four deals occurred over £50m in the quarter.

The biggest deal of the quarter saw the US fund manager Ares (advised by DTRE), purchase Project Armitage, a highly reversionary 1.84 million sq ft portfolio from Royal London for £175m/5.5% NIY in an off-market transaction. Elsewhere, the industrial & logistics apportioned pricing for the LondonMetric/LXI merger helped boost the end quarter volume by a further £163m.

Whilst the UK economy has turned a corner and the threat of a prolonged recession is in the rear-view mirror, the bond and swaps markets tell of the bumpy path endured year-to-date as well as providing a pre-cursor to what lies ahead. 

At the start of the year and on the back of the US Federal Reserve signalling they were likely to undertake four rate cuts during the course of 2024, UK 10-year bond yields were trading at 3.4%, however, as the prospect of both a) when the first rate cut will be and b) how many there’ll be this year, the UK 10-year has moved upwards and now stands at 4.3% (17th April).

The swaps market tells a similar story, with 5-year swaps at 3.5% at the start of 2024 and now standing at just a nudge over 4.1% (17th April).

Whilst corporate activity in the listed sector is on the rise - as undervalued businesses receive attention from bigger players seeing an opportunity to create scale - in a pure property transaction sense, the shift in bond yields and swap rates since the start of the year has meant capital has been hesitant, particularly for the bigger ticket lot sizes. Unfortunately, we expect more of the same ‘wait and see’ approach for the next 3 months at least, with transaction volumes remaining depressed whilst the ‘bid/ask’ spread remains too wide.  

Significant dry powder continues to admire the sector, and with the Big Box vacancy rate about to turn a corner, real rental growth continuing and a 25 bps cut to interest rates to come in Q3, we remain hopeful of a busy end to the year.   

DTRE Big Box Logistics Report - Q1 2024

5 Things You Need to Know About Offices, Science & Technology in Cambridge

In Q4 alone, combined lab and office take up in Cambridge reached 243,700 sq ft, lifting total
annual take up to 673,300 sq ft, 16% above the 5-year average. For space over 10,000 sq ft, lab
take up exceeded office lettings by 6.4% (15,000 sq ft), a first for the market.


Named tenant demand for lab space cooled to 790,000 sq ft by the end of the year from
880,000 sq ft in Q3. However, with just 86,500 sq ft of up-and-built bespoke available lab space,
the supply-demand imbalance remains prevalent in the market.


Office take up, whilst ahead of 2022 totals, was restricted by the absence of larger transactions,
with just four occurring for space between 20,000 and 50,000 sq ft. In the absence of larger
deals, the flight to quality over quantity was the key theme in the market, as changes to work
practices continue to see the release of excess space and the transacting of smaller but higherquality product.
Shifts in working practices and other factors have continued to contribute towards negative
investor sentiment surrounding offices, helping to hold back transactional volumes in 2023, with
just £153 million* of deals completed across the office, science, and technology sectors.

Lab take up was strong in 2023, with total take up reaching 282,000 sq ft despite severe
supply constraints across the Cambridge market.

In total, there were nineteen lettings in 2023, up 161% on the 5-year average from 2018-2022, the
highest recorded take up of labs in Cambridge.


The second half of the year saw an uplift in leasing activity with the 85,000 sq ft letting to BioNTech
at 1000 Discovery Drive in December. Of the eleven deals for space over 10,000 sq ft, this was the
only letting above 30,000 sq ft.

This is reflected in the requirement schedules as 67% of the 790,000 sq ft of named demand is
for space below 30,000 sq ft.


Another continuing trend across 2023 was the letting of new or refurbished bespoke wet labs
whilst still under construction. Six of the eleven deals for space over 10,000 sq ft followed this
trend, including the complete letting of 1000 Discovery Drive at the Cambridge Biomedical Campus
to BioNTech (85,000 sq ft) and the NHS (23,100 sq ft); B960 at Babraham Research Campus,
comprising of 36,000 sq ft, wholly let to three tenants at headline lab rents of £66-68.00 per sq ft
before completion; and Domainex, advised by DTRE, committing to 24,300 sq ft at £46.00 per sq
ft in Building A2, Unity Campus.


These deals support the established themes identified in the Cambridge market where the supplydemand imbalance is increasing pressure on available supply, resulting in new supply being prelet or accounted for before practical completion. 


2023 also saw BioMed Realty pre-let 24,800 sq ft of shell and core lab space at One Granta Park
to T-Therapeutics, with good interest on the remainder of the space, as well as signing 21,000
sq ft at the Franklin Building also on the park to F-Star (invoX) for two years, with the existing lab
space taken as is.

In terms of supply, there was 86,500 sq ft of up-and-built bespoke lab space available to
lease at the close of 2023, consisting of 55,000 sq ft of ex-AstraZeneca space at Milstein,
Granta Park, 16,000 sq ft at Phase II Unity Campus, and 15,500 sq ft at Phase I The Press,
Foxton.


Live demand remains comfortably in excess of supply however pressures should alleviate
slightly with the upcoming completions of 110,000 sq ft at One Granta Park in Q4, 40,000 sq ft at
CamLIFE in Q3, and 22,000 sq ft at 316 Cambridge Science Park in Q2, alongside the release of
58,600 sq ft of ex-AstraZeneca space at 310 Cambridge Science Park, also in Q2.


Looking to Q2 2025, Abstract Securities will complete on the largest speculatively built laboratory
building currently under construction in Cambridge. The South Cambridge Science Centre will
comprise of 138,250 sq ft of highly flexible, high quality lab space.


The mid-tech market, however, will see continued stress on supply, with only 151,700 sq ft at
Bourn Quarter Phase II due to be delivered in 2024. Mid-tech is becoming more of a feature
of the market as developers realise the benefits of providing buildings that can accommodate
a diverse range of manufacturing, lab-enabled offices, and GMP space. The provision of a
more flexible offering attracts a broader range of science, tech, and more traditional industrial
occupiers. Accelerator Park in Sawston will build on this momentum by delivering three mid-tech
and R&D buildings comprising 86,300 sq ft in 2025.

Against the backdrop of low supply, the prime headline lab rent in Cambridge remains £71.00
per sq ft, achieved when Charm Therapeutics took 13,600 sq ft at Babraham Research
Campus in Q2. In the same quarter of 2020, Bit Bio set a rent of £43.15 at Babraham Research
Campus, reflecting a 65% rental uplift and an annualised compound growth rate of 18%.

Total office take up in 2023 reached 391,000 sq ft, a 13% increase on 2022’s levels. Despite
this increase, office leasing remained restricted by flexible working ongoing from the peak of
the coronavirus pandemic, falling 17% below the 5-year average (2018-2022).


Of the total, 46% (181,000 sq ft) was for Grade A space, headed by Samsung taking 33,600 sq
ft at One Cambridge Square for 10 years at a headline rent of £38.50 per sq ft, and Raspberry
Pi taking an assignment of the 30,000 sq ft former CMR space at 194 Cambridge Science Park.


Grade A leasing activity remained restricted by a lack of high-quality up-and-built available
space.

There was just 215,100 sq ft of Grade A office space available over 10,000 sq ft at the end
of 2023, with a vacancy rate of 2.9%, further evidencing the demand for top-quality space.


The total availability of office stock over 10,000 sq ft reached 661,600 sq ft at the close of 2023,
reducing the total vacancy rate for all grades to 8.8%, from 9.5% at the end of Q3.


DTRE identified the trend of increased lettings occurring for smaller spaces. Across 67 deals,
82% were for space from 0-10,000 sq ft, 12% in the bracket of 10-20,000 sq ft, and 6% occurred
for space between 20-50,000 sq ft. There were no leasing deals over 50,000 sq ft in 2023.

Occupiers are taking smaller but high-quality spaces as they focus on the quality of the real
estate to attract employees back to the office following the pandemic-enhanced work-fromhome culture.


Despite these pressures on supply, the year ended with a significant amount of office space
under offer – over 142,500 sq ft, of which 67% is Grade A space, reiterating the flight to quality
narrative that DTRE are hearing from occupiers. 


Looking to 2024, we will see the completion of M&G and Wrenbridge’s 68,000 sq ft development,
Brooklands, alongside the delivery of 10 Station Road which will provide 50,400 sq ft by the end
of the year. At the close of 2023, demolition works were also underway as part of Railpen’s
Botanic Place development that will build two office blocks totaling 500,000 sq ft of workspace.

Continued pressures on Grade A space with the flight to quality and ESG pressures on
businesses will encourage the leasing of these new developments, evidenced by Brooklands
already being 41% pre-let.


In addition, we can expect demand for office space to increase through 2024 as companies
continue to solidify their return-to-office plans and incentivise in-office work through their real
estate offerings. 

Investment into the office, science, and technology sectors across Cambridge reached £153
million* in 2023, falling 78% behind the £681 million transacted at the end of 2022.


Transactions were restricted by negative sentiment surrounding shifts in working practices,
increases in material and construction costs, high interest rates, yields continuing to move out, and
planning challenges.

Whilst down on investment volumes seen across 2021 and 2022, the total does remain 25%
above the pre-COVID 5-year average from 2015-2019. Furthermore, there was £60 million
under offer going into 2024 which, if completed in Q1 2024, would be over £40 million ahead
of Q1 2023. 

The biggest deal of 2023 saw UBS purchase an existing office building on a 5-acre site at
Westbrook Drive for £75 million, which will be repositioned as an urban laboratory campus.
Canmoor and Tristan Capital acquired four assets and development land at Dales Manor Business
Park, in the years 2nd biggest deal. Advised by DTRE, the 130,100 sq ft park was purchased for
over £27 million, with an underlying science and technology/mid-tech repositioning opportunity.

£720 million of venture capital funding and grants was raised by 108 Cambridge-based Life
Science and BioTech companies in 2023, 36% on the total raised in 2022, and 13% on the 5-year
average.

 72% of this total (£515 million) was raised in Q3 2023 alone, with Apollo Therapeutics
raising over £180 million in the largest Cambridge-based fundraising of the year.


To date, there has been a lack of transactions for up-and-built laboratory buildings to provide
evidence of prime yields in the sector. With positive venture capital investment into the sector,
moving into the second half of 2024 we expect the first newly built up-and-let laboratory buildings
to trade. Given the lack of ‘best in class’ laboratory stock to come to market to date, we anticipate
strong investor demand for this product, which will in turn secure strong pricing, building confidence in the science and technology investor market. 

Office, Science & Technology Investment & Leasing Cambridge Market Review – Q4 2023

5 Things You Need to Know About Big Box Logistics In Q4 2023

After three record breaking years, the UK’s Big Box occupational market has reverted to pre-pandemic levels, however, given the macro-economic picture that unfolded during 2023 that is not necessarily such a surprise.

Take up by the end of 2023 was just short of 25 million sq ft and whilst that is down 35% year-on-year, when compared to the long-run ‘pre-Covid’ average from 2007-19, take-up for 2023 is actually up 2%. 

Perhaps more importantly, DTRE are tracking 8.2 million sq ft that is currently under offer as we start 2024, which will provide a significant boost to take-up volumes.


The most dominant sector in Q4’23 (and in 2023 as a whole) remained the retailers, who accounted for just over 51% of total occupier demand in the final three months of the year, with Amazon’s return to the market, securing a site at SEGRO’s Northampton Gateway to develop a new 2 million sq ft facility – an early Christmas present for the market.


Looking ahead, we expect the retailers to continue that trend as the dominant sector. The grocers, including Tesco, Sainsbury’s and Marks & Spencer all have requirements as part of a drive to increase supply chain efficiency, and we expect Amazon are on the cusp of a significant return in 2024.


Whilst manufacturing enjoyed a strong Q3 last year, that uptick was not sustained in Q4, with just five transactions totaling 600,000 sq ft. Given the latest PMI and GDP numbers from the manufacturing sector, we would be a surprised to see above trend demand from that area of the market in 2024 (see Fig 2).


Turning to supply and vacancy, the supply of Big Boxes has continued to rise throughout the year, with 15 million sq ft (64 buildings) of new speculative developments completing across the UK together with a further 8 million sq ft of ‘grey space’ added to the supply schedules. The effect is that the DTRE Big Box Vacancy Rate has risen all the way to 6.85% by end 2023, up from just 3.5% twelve months ago.

The statistic is that 36% of the UK’s entire Grade A supply (in 24 buildings) is of between 300,000 and 400,000 sq ft.


However, on a positive note, last year’s pricing correction and construction price rises have ensured no supply increase, and so we anticipate that 

the current vacancy rate of 6.85% will be the peak of supply, with only 5.7 million sq ft of new speculative development is due to complete in 2024.

This will be the lowest level of new speculative completions of Big Boxes since 2017.

 Available planning permissions and prohibitive site enablement costs will ensure that on-site starts will remain suppressed.

"There is currently 23 million sq ft of Grade A space on the market, however, with 24 assets totalling 36% of the UK’s entire Grade A supply is between 300,000 and 400,000 sq ft, it is evident that certain size brackets have more vacancy than others."

Finally, rental growth continues to confound. The latest MSCI Monthly Index for end December showed annualized rental growth of 7.2% for distribution warehouses. Whilst rental growth had tracked closely with the UK’s CPI for much of 2023, by autumn a de-coupling process had started and we are now seeing real rental growth of 330 basis points over the latest inflation number of 3.9% (see Fig 3).

Macro-economic themes dominated the investment market in 2023 and those same themes won’t disappear entirely over the next 12 months. However, whilst downside risks remain, long term trends (de-globalisation, demographics, and de-carbonisation) also provide tailwinds for the logistics sector and with the overall macro outlook starting to improve, with inflation easing, a UK recession looking unlikely and with the interest rates narrative switching to cuts rather than rises, sentiment turned to a more positive outlook as ‘23 closed and ’24 opened for business.

Investment volumes across all industrial and logistics reached £7.4bn in 2023,

 and though that was down on the £13.3bn transacted in 2022, it is still a remarkable 

40% ahead of the average annual volume from 2007-2019

. When stripping out multi-let deals, overall logistics volumes reached £4.7bn, down 39.7% on 2022.


Despite overall volumes being ahead of the long-run average, Q4’23 finished as a damp squib, with just shy of £530m transacted, with the largest single-let deal being the sale by Tritax of an 847,000 sq ft Eddie Stobart unit on midlands Logistics Park to P3 Logistics Park for c.£92m.


Looking ahead to what’s in store in 2024, the industrial and logistics sector remains the asset class of choice and whilst fully acknowledging that some investors will come under pressure from numerous external forces, such as fund redemptions, refinancing and potential breaches in Loan-to-Value covenants, we do not expect to see distress in the market.


The lack of distress can be largely attributed to the fact that many banks are now reluctant to step back into the market having worked out of their positions following the GFC. As a result, investors faced with having to refinance could be given the option to simply ‘kick the can’ down the road in the hope that improving macro-fundamentals will see an easing in financing conditions and/or some yield compression.


In terms of pricing, the economic fundamentals have improved in recent weeks, with the yield on 

UK-10 year gilts coming in from c.4.7% at the end of October 2023, to 3.4% by the turn of the year.

 Albeit that yield has moved out once more in the first two weeks of January 2024 to stand at 3.9% (January 18th 2024).


The reason for the fall in yields in recent weeks has been that the US Federal Reserve policy makers signaled in mid-December that they expect to undertake 75 basis points of cuts this year, marking an abrupt shift from previous warnings that rates could still go higher through much of 2024.


Whilst the rhetoric from the Bank of England has remained that it’s ‘too early to signal rate cuts’ and that 

the fight against inflation is not yet over, the BoE is largely expected to follow the US FED in cutting rates in 2024.

 Therefore, from late summer, DTRE expect to see more conviction from investors as inflation and in-turn the Bank of England base rate starts to fall. As a result, UK-10 year gilt yields should also fall to c.3.5% and stabilise at that level, allowing prime yields to fall in-line with the ‘risk-free’ rate.


In terms of who will be active market participants in 2024, institutions are returning to the market after being priced out for a number of years, seeking to capitalise on the limited number of unexpectedly available core assets.


However, the US Private Equity houses, Prologis and the UK REITs will be the dominant market forces as the year progresses. Blackstone, KKR and Ares, amongst others, have all signaled their intention to deploy into the sector in 2024.

"... from late summer, DTRE expect to see more conviction from investors as inflation and in-turn the Bank of England base rate starts to fall. As a result, UK-10 year gilt yields should also fall to c.3.5% and stabilise at that level, allowing prime yields to fall in-line with the ‘risk-free’ rate."

Big Box Logistics Market Review – Q4 2023

Office and laboratory take up in Cambridge reached 173,000 sq ft this quarter, a notable 47% uptick from Q2’s levels, driven by office transactions. 

Tenant demand for the office, science and technology sectors remained unsatisfied this quarter, with the lack of up-and-built laboratory and Grade A office space continuing to persist. 

Combined office and laboratory investment volumes reached £139 million at the end of Q3, 14% above the 5-year full-year pre-pandemic average of £122 million, despite rising construction costs and softening yields. 

Q3 witnessed Life Science ad Bio-Tech firms raise £515 million through fundraising and grants, an increase of £430 million (513%) on last quarter. Whilst VC fundraising activity is occurring, from discussions with occupiers it is taking noticeably longer to close the raises, as well as the macroeconomic factors adding to increased occupier sentiment of the importance of capital conservation.

Laboratory take up this quarter reached 40,000 sq ft, c.20,000 sq ft behind the previous quarter.


The letting of the latest new development at Babraham Research Campus, Building 960 by
BioMed Realty, has accounted for 89% of total laboratory take up this quarter. 

The 34,000 sq
ft fully fitted wet laboratory to complete in the opening quarter of 2024 has been pre-let
to three occupiers. 

The largest of the lettings was Insmed taking 17,700 sq ft, followed by Xap
Therapeutics leasing 10,200 sq ft, as well as Mosaic Therapeutics, a graduate of the Research
Campus’ start-up programme, Accelerate@Babraham, taking the remaining 6,700 sq ft.


Despite a lower overall take up compared to last quarter, these transactions highlight the
continued presence of demand for fitted laboratory space as the latest lettings at Babraham
reflect rents in the range of £66-68 per sq ft for fully fitted labs, based on 5-year leases.

The prime rental level at Babraham Research Campus was £43.15 per sq ft 36 months ago,
reflecting a rental growth uplift of 65% and a compound annual growth rate of 18.06%,
supporting the sentiment that occupiers are happy to pay rents at a competitive level
following the new prime laboratory rent set at the campus last quarter of £71.00 per sq ft. 

Low take up can be attributed to the running theme of the 882,000 sq ft of active laboratory
demand not being fulfilled by current supply. There are only 2 new laboratory developments
currently under construction to complete by the end of the year, 1000 Discovery Drive and Phase
2 Unity Campus. 

Of the c.200,000 sq ft to complete, 70% is already leased or under offer.


Abstract Securities have just broken ground on a new speculative lab building at the South
Cambridge Science Centre in Sawston. At 138,250 sq ft it is the largest speculatively built
laboratory building currently under construction in Cambridge and will provide highly flexible,
high quality laboratory space to foster collaboration and innovation, reaching completion in Q2
2025.

Life Science and Bio-Tech companies in Cambridge have raised £678 million this year to date
through 83 raises and grants.

 £515 million was raised in Q3 alone by key fundraisings including
the two largest fundraisings this year to date by Apollo Therapeutics Limited and CMR Surgical,
raising over £180 million and £133.8 million respectively.

Office take up across Cambridge in Q3 reached 131,000 sq ft, equating to 76% of combined
office and laboratory take up and surpassing Q2’s office transactions by over 76,000 sq ft
(139%).


Take up has focused on the serviced office/flex space, with the largest deal of the quarter being
the serviced office operator, Mantle Space, taking and adapting 22,600 sq ft of former Invenia
Labs fitted office space by way of assignment at 95 Regent Street, CB2. In the Cambridge North
cluster, Newflex has leased 18,300 sq ft at One Cambridge Square near Cambridge North rail
station to develop into serviced office space in one of the largest deals this quarter.


The new FORA serviced offices building at Station Road in the city centre also opened its doors
during the summer and is steadily filling up, providing competition to the existing WeWork centre
at 50/60 Station Road.


There was 163,500 sq ft of office space under offer in the northern cluster and city centre by
the close of the quarter, a substantial amount driven by the 484,000 sq ft of DTRE-tracked
demand, influenced largely by displaced occupiers coming out of buildings that are to be
redeveloped.


Q3 also followed the previously identified trend of the increase in deals occurring for smaller
spaces, and the decline in larger-sized deals. With 19 office deals completing this quarter, 14
agreed leases were within the 0-10,000 sq ft size bracket. Furthermore, just one deal occurred
between 20-50,000 sq ft, and no deals were recorded for leases above 50,000 sq ft.

By the end of the quarter, the overall office vacancy rate across Cambridge was 9.5%, but
only 3.3% for new or modern Grade A offices, down from 4.1% in Q2.


One Cambridge Square is the only new office development in the northern cluster and is already
65% let. There are two new developments under construction in the city centre, 68,000 sq ft
of space at Brooklands which is 41% pre-let, and 10 Station Road, the latest addition to the CB1
office quarter, which will deliver 50,440 sq ft by the end of 2024.
Despite overall available office space in Cambridge rising by 44,000 sq ft (6.6%) since last
quarter, it is due to the release of occupier space as corporates continue to rationalise their office
portfolios in response to changing working practices and the development of the work-fromhome culture.


We are confident that much of this available space will be soaked up by the increase of
tenants in the market and from the continued pressure on Grade A space as the flight to
quality, over quantity, persists.

Canmoor and Tristan Capital, advised by DTRE, have purchased a cluster of four buildings and
development land assets at Dales Manor Business Park. Sold by Warehouse REIT, the 130,049 sq
ft park was purchased with an underlying science and technology repositioning angle for £27.25
million.

Investment into the office, science and technology sector across Cambridge has reached
£139 million so far this year.

 Whilst down on the surges of investment seen in the previous two
years as investment flew in due to the pandemic, if the £88 million of space that is currently
under offer comes through by the end of the year, investment volumes will reach £227
million, 86% above the pre-covid 5-year average (2015-2019).

Increases in material and construction costs, affected by inflation, alongside planning constraints,
and yields continuing to move out, have supported the wake of the pandemic in restricting
volumes so far this year.


At the close of Q3, the search to recapitalise large schemes continued on from H1 , with
several £100 million in development funding opportunities available for the office, science and
technology sector in Cambridge. Brockton Everlast offers the largest opportunity in its search for
a Cambridge Science Park partner at over £300 million.

Despite the dip in investment volumes compared to the previous two years, we anticipate the
market bouncing back, supported by the continuous strong demand in the golden triangle
alongside the re-emerging confidence in buyers as the VC tap continues to flow.

Office, Science & Technology Investment & Leasing Cambridge Market Review – Q3 2023

5 Things You Need to Know About Big Box Logistics In Q3 2023

The annual summer slowdown that occurs during Q3 has unfortunately not helped in boosting this quarter’s take-up figures which reached just shy of 5 million sq ft. As a result of this year’s slowdown, occupational demand has now reverted back to it’s pre-pandemic trend line, after the Covid-induced boom.

Nine months into 2023 and take-up for Big Box logistics units over 100,000 sq ft stands at 16.7 million sq ft, down 41% year-on-year. However, as mentioned this is close to the preCovid (2009 19) average of 19 million sq ft. Measuring take-up on a quarterly basis shows that since Q1’22 take-up has averaged out at 7.5 million sq ft, similar to the pre-Covid (2009-19) quarterly average of 7.4 million sq ft.


What has caused this reversion back to pre-Covid trends? This can largely be attributed to three things.
Firstly, due to the macro environment, decision-making processes within businesses are taking much longer. That is apparent in the take-up numbers as well as current requirements. We currently have 9.2 million sq ft of space currently under offer, however, of that figure, 40% of it was also under offer three months ago when I last wrote this report.


Secondly, the growth in online retail sales has fallen back to its pre-pandemic trend after the Covid-induced spike. Online sales accounted for 24.9% of total retail sales in the UK in August 2023, down from a high of 37.2% in November 2020, however, still higher than the 19.1% seen in February 2020 and tracking the pre-Covid trendline. 

"We currently have 9.2 million square feet of space currently under offer, however, of that figure, 40% of it was also under offer three months ago when I last wrote this report."

Pure-play e-commerce retailers accounted for 57% of total retail take-up in 2021 as they rushed to deal with this new level of demand, however, since the end of the pandemic pure-play retailers have retreated and therefore demand from e-commerce occupiers for warehouses has also fallen back. This year e-commerce occupiers account for just 16% of take-up from retailers.


Nevertheless, as retail sales and consumer confidence recovers over the next 12 months and the worst of the interest rate and inflationary environment passes, we expect to see the online retail segment of the market recover also, back to prepandemic levels of around 30%.


Thirdly, despite some sporadic examples, the return of the manufacturers in a post-pandemic and post-Brexit world is yet to materialise in any meaningful way. Manufacturers are on course for their worst year of take-up since 2013 and take-up is currently 55% below its long-run annual average since 2009. The latest UK PMI data for manufacturing doesn’t point to a pick-up anytime soon given there has been a slowing in both global and domestic demand.

The DTRE Big Box vacancy rates now totals 6.2% up meaningfully from the 3.5% it was
at the turn of the year with a further 6.1 million square feet to be added in the remaining 3 months of 2023..."


Another area of the leasing market attracting some unwanted attention is the level of supply in the market.
Looking at the supply schedules, there can be no doubt also that supply has ticked up and t

he DTRE Big Box vacancy rates now totals 6.2% up meaningfully from the 3.5% it was at the turn of the year, with a further 6.1 million sq ft to be added in the remaining 3 months of 2023.


We have modelled the vacancy rate to reach a high-water mark of 6.6% if current occupier levels of take-up are sustained through the remainder of this year. However, from Q1 2024 we expect the vacancy rate to start to fall considerably given the highly constrained pipeline thereafter.


The constrained pipeline also provides investors and developers with confidence that the rental growth story can be continued. With above-target inflation expected to continue through 2024 and a relatively resurgent consumer matched against the constrained development pipeline, DTRE is forecasting average distribution warehousing rental growth of 4.3% in 2024, which is well in excess of anything else on offer in the offices or retail sectors.

After a turbulent twelve months it feels as though the investment market for industrial and logistics has at the very least steadied. Given the significant weight of global capital that is continuing to target the sector we feel confident that yields for prime assets will at the very least maintain current pricing levels and we may begin to see some inward movement from this point. At the other end of the spectrum, however, we could yet see further outward movements for secondary and tertiary assets as void and default rates will rise until mid-2024 and cap-ex bills start to mount.

In terms of the numbers, Q3 investment volumes reached just over £1.15bn, split between £630m in single-let assets and portfolios and £566m in multi-let estates and portfolios. This takes the annual total so far to just over £5.3bn – down 53% yearon-year but up 13% on the 5-year average (2016 - 20) prior to the Covid induced boom.


The biggest ‘Big Box’ deal of Q3’23 saw Bericote and JP Morgan, advised by DTRE, sell Coventry Logistics Park to DTZ Investors for £140m/4.5% in an off-market deal. Whilst the biggest openly-marketed deal saw Valor purchase Tera40, a four-unit mid-box scheme in Greenford, London for £143m/2.96% from Lothbury. Tera40 saw multiple rounds of bids and attracted significant attention from across the investor community with bids from ten separate parties, demonstrating the depth of demand for prime, logistics assets.

"Q3 investment volumes reached just over £1.15bn, split between £630m in single-let assets and
portfolios and £566m in multi-let estates and portfolios."

Other £100m plus deals saw Blackstone, advised by DTRE, purchase a three-unit portfolio from Equation and BentallGreenOak in another off-market transaction for £102m. Whilst SEGRO, advised by DTRE, sold their three-unit Javelin Portfolio to P3 Logistic Parks for £100.9m.


Yields have stabilised so far this year and the latest MSCI Monthly Index for August showed yields for ‘All Industrial’ were flat once more at 4.7% for the eighth consecutive month, whilst the industrial sector was the only sector to post positive capital growth in August, on the back of the continued rental growth story.
‘All Industrial’ rental growth is currently running at 6.8% in the year to end August, with Distribution Warehouses slightly behind at 6.4%. Whilst rental growth will continue to cool from the extraordinary high of 14.2% seen in August 2022 we continue to expect the sector to deliver ‘real’ rental growth. DTRE are forecasting average distribution warehouse rental growth of 4.3%, with rents being supported by the declining vacancy rate and recovering macro-economic outlook through 2024.
In terms of future pricing, the current economic fundamentals don’t quite stack up particularly amid the continuing sell off in bonds which is driving up yields. The ‘riskfree’ rate on offer from the UK 5-year (4.66%) and 10-year gilt yields (4.62%) is currently in-line with the MSCI ‘All Industrial’ net yield (4.74%), this is versus an historic spread of c.350bps over since the start of 2018 until the correction in September 2022.


At these metrics we will have to see a further shift outwards in yields. Whilst we don’t believe there will be any further significant outward shift for prime logistics there could be cause for concern in the more secondary end of the market. As these types of units come up for re-financing, the shift in yields and new financing rates will mean LTV covenants could be in breach and a hole in the debt package will need to be filled, or risk handing the keys back. Should distress appear then pricing will soften.


However, on the whole we don’t expect to see widespread distress. There continues to be a significant weight of global capital targeting industrial and logistics, particularly as the sector continues to offer some of the most future-proofed assets and all without the more problematic EPC and ESG-related hurdles facing offices and retail. These factors coupled with limited stock coming up for sale will maintain values at the prime end.

"...There continues to be a significant weight of global capital targeting industrial and logistics."

Big Box Logistics Market Review – Q3 2023

5 Things You Need to Know About Life Sciences & Offices in Oxfordshire

Total office and laboratory take up for space over 5,000 sq ft in the first half of 2023 totalled 231,000 sq ft, 12% above the H1 5-year average of 206,700 sq ft. This was led by Moderna at Harwell Science and Innovation Campus taking 145,000 sq ft. Despite the acute shortage of laboratory and Grade A office space, this combined take up is 67% above the equivalent period in 2022.

There have been three investment transactions in H1 2023 totalling £51m, with DTRE advising Mayfair Capital on the sale of the 31,600 sq ft Hinshelwood Building at £19.4 million/NIY 3.86%, the only office sale in the first six months of 2023, Kadans Science Partner purchasing the Windrush Innovation Centre, and IM Properties acquiring Nova Oxford. 

Furthermore, despite the peak of H1 2022, investment volumes do remain above the H1 average
from 2018-2021 of c.£45 million. 

According to Beauhurst, life science and bio-tech companies in Oxfordshire have raised £315 million in the first half of 2023, on target to achieve the current 5-year average of £609 million
over the remaining six months. 

H1 of 2023 was dominated by Moderna deciding on Harwell as the location for its Innovation and Technology Centre. The new 145,000 sq ft development will include a GMP manufacturing facility as well as a clinical biomarker laboratory, and accounts for 63% of total office and laboratory take up so far this year.


The largest office letting in H1 occurred to Ryze Hydrogen at North Bailey House. The c.20,000 sq ft new build letting represents over half of the total office take up in the opening six months of the year.


Let at £62.50 per sq ft, the rent agreed for North Bailey House remained in line with the prime office rents in Oxford and demonstrates the continuous strong demand for prime, best in class, new office space. Since 2018, the prime office rent for space above 5,000 sq ft in Oxfordshire has drastically grown by 80%, driven by the acute lack of supply and the subsequent demand for best-in-class space.


Combined available up and built office and laboratory space totalled c.320,000 sq ft at the close of the quarter, with c.130,000 sq ft currently under offer. 

With 480,000 sq ft of active known laboratory demand in Oxfordshire, the  persistent supply demand imbalance cannot be supported, and the shortage of laboratory space will roll into the second half of the year.


The imminent delivery of schemes including the completion of MIssion Street’s Inventa, Botley Road later in the year, to provide over 65,000 sq ft, and the near completion of Kadans Science Partner’s Barton House, Abingdon, to provide 25,600 sq ft, will partially rectify the supply demand imbalance alongside the large future pipeline of activity.


Over the next 2.5 years, there is c.1m sq ft of laboratory space to be delivered of which is currently under construction, has planning granted, or is in for planning. 870,000 sq ft of this pipeline will be delivered in 2025, with nothing expected to be delivered to the market in 2024. 


Total office and life science investment volumes in Oxfordshire hit c.£51 million in H1 2023. Despite being 86% down from the record year of H1 2022 of £373 million, the opening quarters of 2023 do remain in line with the recent half year averages from 2018-2021.


Q2 saw IM Properties purchase Nova Oxford for £21.5 million after planning was secured for the 43,573 sq ft mid-tech building available from Q1 2024. 

Kadans Science Partner also expanded their presence in Oxfordshire this quarter, with the acquisition of the Windrush Innovation Centre site to be redeveloped for 60,000 sq ft of laboratory and office space for Oxford Biomedica.


Looking to the second half of the year, investment volumes will increase with over £100 million of life science development under offer and £50 million available.


With many life science development owners looking to recapitalise their large schemes, Q2 saw Oxford start to focus on addressing the acute lack of laboratory space in one of the largest property financing deals in the UK this year as Harwell Science and Innovation Campus secured a £300 million loan.


The joint venture between Brookfield, the United Kingdom Atomic Energy Authority and the UK’s Science and Technology Facilities Council received the loan from Deutsche Bank, BNP Paribas and AXA IM in a boost to fund critical expansion of the Harwell campus.

Market Intelligence

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Office, Science & Technology Investment & Leasing Cambridge Market Review – Q3 2023

Big Box Logistics Market Review – Q3 2023

Office, Science & Technology Investment & Leasing Oxfordshire Market Review – Q2 2023

North West Industrial & Logistics - Occupier & Investment Market Review H1 2023

Office, Science & Technology Investment & Leasing Cambridge Market Review – Q2 2023

Big Box Logistics Market Review – Q2 2023