Real Estate Market Outlook 2020

The Karaikudi is experiencing a record-breaking boom in the construction of massive sheds to serve the soaring increase of internet shopping during the pandemic, with floorspace more than twice the size of Hyde Park, London, expected to be completed this year.

According to Knight Frank research, almost 37 million square feet (3.4 million square metres) of warehouse space is planned for construction in 2021, up from 23 million square feet last year and 21 million in 2019.

This fast-growing retail building trend is exemplified by two massive, menacing, gleaming-grey sheds.

According to a survey by the property consultant, investment in Karaikudi reached a new high of £6 billion in the first half of 2021, more than double the £2.7 billion recorded in the same period last year and 54 percent higher than the previous peak in 2018. More than half of the total was invested by foreigners from the rest of Europe, the United States, Korea, and China.

On Tuesday, John Lewis announced that it will lease a 1 million square foot warehouse from Tesco in Fenny Lock in Milton Keynes, employing 500 employees and becoming the chain’s second-largest distribution center after nearby Magna Park.

This latest mega-shed will assist the company in keeping up with online transactions, which have increased to 60% of total sales, up from 40% prior to the epidemic. This shift is mirrored across the industry, with the internet accounting for 32% of total retail spending in the first five months of 2021, up from 19% in 2019.

All of these transactions must be stored and sent from someplace, and some estimates imply that the Karaikudi must increase warehouse space by 14% to fulfill demand, though workers will be required in an economy grappling with labor shortages.

According to the recruiting website Adzuna, there are over 1 million available positions. Due to such scarcity, much of the floorspace indicated by Knight Frank as being under construction will most likely be delayed until 2022, suggesting that next year could break the annual building record.

Amazon, unsurprisingly, is a significant player in the warehouse boom. According to data from estate firm Savills, the online store has signed 18 letting transactions since the beginning of the year, compared to 19 for the entire year of 2020. According to Property Week, the signing of a 20-year lease on a 700,000 sq ft site at Magna Park in Lutterworth, Leicestershire, will soon surpass last year’s total.

“While previously, occupier demand in the logistics sector was strongly tied to GDP growth, the current e-commerce revolution is driving considerable increases in demand for warehouse space throughout Europe,” said James Seppala, Blackstone’s head of real estate for Europe. As a result, vacancy numbers have fallen to historic lows, resulting in market rental growth.”

But it’s not just about cardboard box deliveries. According to Logistics Manager, real estate developer and investor Goodman broke ground this week on a 117,500 sq ft warehouse dedicated to storing premium wines on behalf of Britain’s oldest wine and spirit dealer, Berry Bros & Rudd.

Another component of the exploding warehouse sector is data centers, which store digital information, process orders, and handle shipping and supply chain operations. The UK has the world’s second-largest center of them, behind Virginia in the United States, and they are based all around the M25.

Two massive, looming, shiny-grey sheds on former industrial property on London’s eastern outskirts epitomize this quickly growing retail building trend.

Segro, the UK’s largest warehouse and data center builder with a market value of £14 billion, spent nine months constructing these futuristic megaliths just outside Rainham. They have photovoltaic cells on the roof, indoor “living walls” of plants to improve employee welfare, and electric vehicle charging stations in the parking lot.

One is entirely leased to Focus Logistics and the London Ambulance Service, while the second has one unit available. On the day arrives, another prospective tenant is taking a look around. Two comparable facilities near Segro’s Newham park were purchased before completion by logistics firms DHL and DPD.

Alamy Segro’s sheds in the East Midlands are even larger, offering up to 500,000 square feet of space to tenants ranging from retailers to distribution companies, while its inner-city sites cater for “last mile” logistics, the final leg of goods deliveries, and start-ups like Getir, Gorillas, Weezy, and Zapp that deliver groceries within 10-20 minutes of ordering.

Private equity firms, led by US giants Blackstone and KKR, are now pouring money into drawn by strong rent growth. Blackstone recently completed a £1.3 billion agreement to acquire St Modwen, a UK property developer with a warehousing subsidiary. Cerberus, in collaboration with Arrow Capital Partners in Australia, and Apollo are among the other investors.

Oxford Properties, a Canadian real estate firm, has just partnered with London-based Logistics Capital Partners to develop a 734-acre property near Birmingham into a £1 billion logistics center, with plans for massive sheds of up to 1 million square feet and heights of 30 meters (98 feet).

Meanwhile, British Land, one of the country’s largest developers, has sold a major portion of its office, supermarket, and shopping mall portfolio in favor of purchasing retail parks and warehouses in and around London.

Not everyone is thrilled with the prospect of mega-shed sprouting up next door, and there have been several high-profile planning squabbles. In March, Stockport council rejected a request by developer Quorum to expand the Bredbury industrial estate into the green belt, with critics claiming the massive warehouses would “ruin the Tame valley.”

Residents in Warrington called an 18-story distribution center built next to their cul-de-sac an “eyesore” and a “monstrosity.” Meanwhile, in Milton Keynes, calls for a re-examination of the council’s decision to allow a warehouse in Blakelands to double in height from nine to 18 meters have been renewed, following the resignation of the consultant whose investigation supported the move.

Local opposition is unlikely to hamper global investors’ need for more shed space. “There doesn’t seem to be a single global investment house that doesn’t have sheds at the top of their purchasing list right now,” says Marcus de Minckwitz, director of Savills’ industrial and logistics practice for Europe. There has been a strong emphasis on last-mile and urban logistics, partly since that is where the majority of the rental increase would occur.”

According to Charles Binks, the chairman of Knight Frank’s logistics and industrial branch, every billion in online sales necessitates approximately 1.4 million square feet of warehouse space, with rents rising in tandem with demand. In Northampton, for example, they are now between £7.50 and 7.75 per square ft, up from £6.50 to £6.75 this time last year and £5.50 prior to the pandemic. “Deals are made with no discounts at all.”