DTRE Big Box Logistics Report - Q4 2024
5 Things You Need to Know About Big Box Logistics in Q4 2024
1. Big Box take-up for the year reached 28.6 million sq ft, 13% ahead of 2023’s 25.3 million sq ft and 17% ahead of the ‘Pre-Covid’ average (2007-19).
2. DTRE Big Box Vacancy Rate (all units over 100,000 sq ft) rose to 7.2% at the end of the year, up from 6.9% in Q3.
3. Speculative development remains low, with 9.5 million sq ft due to complete in 2025, down 25% on the 10-year average (2014-2024) of 12.6 million sq ft.
4. Industrial and logistics investment volumes totalled £2.4bn in the final quarter of the year, a 9% increase on the 10-year quarterly average. Pushing total volumes for the year to £8bn.
5. DTRE believe the recent move in the gilt market is overdone and will correct itself once the market realises that higher rates are ultimately disinflationary as tighter credit and the rising costs of capital will sap demand, reduce pricing power and ultimately mean the Bank of England can continue on its interest rate cutting cycle.
Occupational
Despite the wider gloomy economic rhetoric that engulfed the UK during the last quarter of 2024, Big Box logistics take-up rounded out the year with a relatively strong finish, all things considered. Take-up in Q4 reached 9 million sq ft, which was 61% up on the slow Q3 we saw during the summer, 48% up on the ‘Pre-Covid’ 2007-19 average and the second best quarter since the end of 2021.
DTRE recorded 31 deals in the last three months of 2024, meaning it was the busiest quarter of the year and a total of 111 across the year which is 10% ahead of the long-run ‘Pre-Covid’ average. Total take-up for 2024 was 28.6 million sq ft, up 13% year-on-year and 17% ahead of the ‘Pre-Covid’ average.
The biggest transaction of Q4, and the year, by a distance saw Frasers pay £53.5 million to Harworth Group for a 278-acre site near Ansty in Warwickshire for their global HQ. The logistics element of the campus will see the development of five BREEAM Outstanding facilities totalling 3.3 million sq ft. In addition to Frasers, a confidential retailer took 967,177 sq ft at Symmetry Park Kettering from Tritax Big Box Developments and Rockwool signed for 520,000 sq ft at Peddimore, Birmingham. The biggest deal on standing stock saw Oxenwood let their second-hand OXW277 (277,000 sq ft) unit in Dunstable to JD Retail. DSV also leased 215,627 sq ft from ICG to occupy the final available unit at Mercia Park, Appleby Magna following JLR surrendering space.
Whilst Frasers, Nike and B&M were involved in three of the biggest deals of 2024, demand from the retail sector collapsed during the last twelve months. The 3.3 million sq ft Frasers deal, which was concluded on Christmas Eve, took the total volume acquired by retailers to 11.6 million sq ft, but that masks a wider slowdown as the actual number of deals done totalled just 18 for the year. That’s the fewest number of lettings to retailers on record, down 42% on the ‘Pre-Covid’ average and reflective of a wider slump in retail sales and consumer confidence.
Once more the manufacturing sector failed to pick-up much slack with just over 5.2 million sq ft of demand coming from the sector, which again reflected much of the data from the PMI manufacturing surveys and manufacturing GDP. DTRE are yet to see any substantial evidence of the often quoted ‘near-shoring’, ‘re-shoring’ and ‘friend-shoring’ occurring in the UK. Manufacturing take-up in 2024 was 22% behind the 10-year annual average of 6.7 million sq ft we witnessed from 2014-2023. Positively the
3PLs saw another strong year with take-up of 7.6 million sq ft across 2024, which outside of Covid was the second strongest year for take-up on record and 33% ahead of the 5.7 million sq ft 3PL’s typically took per annum prior to Covid (2007-19). This does suggest that the retailers were perhaps seeking to satisfy demand in shorter term, less capital intensive 3PL space with greater flexibility over future certainty of demand for space.
In terms of geographies, the East Midlands dominated take-up accounting for 30% with the supply constrained North West seeing just 2.4 million sq ft of take-up and the lowest level of take-up DTRE have recorded since 2009. Albeit with only 7.9 million sq ft of available standing stock, the North West has the least amount of supply of all the core regions (South East & London 8.8m sq ft; West Midlands 8.9m sq ft; East Midlands 12.7m sq ft; Yorks & Humber 9.3m sq ft), and just three new buildings available bigger than 200,000 sq ft.
The DTRE Big Box Vacancy rate (all units over 100,000 sq ft) did tick up slightly through the quarter and now stands at 7.2%, up from 6.9%. This was predominantly due to 1.35 million sq ft of ‘New’/Grade A product coming to the market whilst there was also an increase in Grade B space of 425,000 sq ft. Total supply stands at 54.35 million sq ft, up 15% year-on-year.
We mentioned last quarter how the pipeline for 2025 looked relatively sparse and that continues to be the case. DTRE are currently tracking 9.5 million sq ft of speculatively built Big Box (100,000 sq ft +) units that will be completed in 2025, which is down 25% on the annual average of 12.6 million sq ft of new spec development completions seen in each year from 2018 – 2024.
The largest number of new units is set to be delivered in units between 100-200,000 sq ft (16 units) but overall there’s a good spread across the other size ranges with Panattoni’s 770,000 sq ft A1M scheme in Harworth and GLP’s MPN761 at Magna Park Lutterworth the two biggest developments scheduled to complete in 2025.
DTRE expects 2025 to be a year of two-halves, with leasing volumes continuing at around their recent quarterly average of 5.5-6.5 million sq ft. Growth areas of the market should come from defence manufacturers as well as the retailers, driven by the return of the grocers. We expect the big grocers to continue in their pursuit of operational efficiencies and to return to the market in the latter half of the year and when allied with a pick-up in consumer sentiment this will help drive overall take-up volumes to be slightly ahead of what we have witnessed in 2024 at around 30 million sq ft.
Capital Markets
In a similar vein to the leasing market, the capital markets enjoyed a strong end to the year with just over £2.4bn of industrial stock trading during the last three months of the year, the second-best quarterly total since the Truss/Kwarteng mini-budget in September 2022 and a 9% increase on the 10-year quarterly average (including the ‘Covid’ era).
Overall, industrial and logistics volumes totalled £8bn for 2024, with Big Box logistics assets accounting for 39% of that total. However, as the year ended fresh macro-economic concerns are taking hold once more (sticky and re-accelerating inflation coupled with anaemic UK growth prospects). As 2025 begins, those concerns are most evident in the UK’s gilt market, which is undergoing a significant correction and has potential to destabilise the fragile recovery.
The two largest deals of the last three months were both undertaken by new entrants to the UK’s logistics sector. Firstly, GoldenTree purchased Abrdn’s 40 asset/3.3 million sq ft Apex Portfolio for £351m/7.54% NIY (however only £183m of this was industrial and logistics). Secondly, RN3 Partners acquired Icon & Alpha at Manchester Airport from THG for £180m/4.94% NIY. Other Big Box deals of note were Sunrise’s purchase of a 756,000 sq ft Tesco unit on DIRFT for £105m/4.24% NIY and Mapletree’s purchase of a 629,000 sq ft GXO unit on Derby Commercial Park for £86.1m/5.37%.
Pricing in Q4 remained firm across the board and as had been the case for much of the year, for ‘prime’ product, there was a significant depth of prospective purchasers. Although Premier Park in Manchester and Enfield Distribution Park (ENDP) are more last mile/mid box in nature, both attracted significant interest from UK institutions as well as overseas platform investors. The result being that Premier Park traded 25% ahead of quote (£46.9m achieved vs £37.5m quote) and ENDP traded 10% ahead of quote (£110m achieved vs £100m quote).
Whilst the year looked to be ending positively and the market moving off the lows of the last two years a speed bump has certainly been hit in the last couple of weeks of 2024 which has continued into 2025 and is most evident in the bond market, with the UK gilt undergoing a significant correction in the last four weeks. In the last month the UK 10-year gilt has risen from 4.2% to stand at 4.8%. Whilst the reasons for this are numerous the knock-on effect will be felt within real estate and pricing of real estate assets.
Nevertheless, we believe the recent move in the gilt market is overdone and will correct itself once the market realises that higher rates are ultimately disinflationary as tighter credit and the rising costs of capital will sap demand, reduce pricing power and ultimately mean the Bank of England can continue on its interest rate cutting cycle.
However, there is now no consensus on how many cuts there’ll be this year, with two, three, four or five 25bps cuts all touted by City economists in recent weeks. Needless to say, real estate will respond positively to lower rates.
