Mon 19 Apr 2021

Urban logistics and multi let industrial- what are the drivers for the UK wide boom?

Over the last 18 months urban logistics and multi-let industrial has remained perhaps the most in demand asset class across the UK real estate sector with a significant uptick in investment demand and occupier activity reported across all the regions and nations of the UK. 

With the most recent data from the Office for National Statistics suggesting that internet sales now make up over 30% of all retail sales in the UK there is very little doubt that the growing e-commerce trend that was evident pre Covid and driven by insatiable consumer demand is very likely to be accelerated to greater heights over the next economic cycle. 

While that e-commerce boom driven by changing consumer behaviour across all sections of society remains the single biggest factor in the growth of the urban logistics sector, there are also some other very significant macro political, social and economic factors which can only add fuel to the fire and drive the sector higher and further.

One of those factors will be the political fallout from Brexit over the next few years as the UK Government seeks to re-balance our economy away from its over focus on London and the south east of England in an attempt to consolidate its electoral support in those areas and regions of England where support for the Conservative party has been historically difficult to rely on.  Similar moves will also be seen in Scotland, with attempts to neuter an increasingly polarised response to constitutional uncertainty driven by the independence debate. Almost inevitably we will see greater public spending and infrastructure investment in these areas, in particular as the UK Government seeks to create some political capital and goodwill through an uptick in economic activity.

How the UK responds to Brexit and what that looks like in terms of our new trading and economic relationships not only with the EU but other parts of the globe will also inevitably drive activity in this real estate sector around the UK. It seems increasingly likely that UK Plc will need to adapt quickly to recognise an unreliable supply chain around the globe, driven not only by the shifting sands of these new political relationships but also the increasing uncertainty of how and when (or even if) a truly globalised economy will emerge from our collective response to the Covid-19 pandemic.

As a nation you could argue that, absent our own robust industrial and manufacturing strategy, the UK has become overly reliant on this globalised supply chain.  As a result we are now exposed to some uncomfortable risks in terms of the supply of our foods, medicines, commodities and energy arising from the global public health crises, uncertain political structures and a growing and resurgent China seeking to become the world's economic powerhouse and unsettle long held trading relationships on the way. I sense a growing concern and recognition in both political and economic circles that our supply chains are too vulnerable and possibly unable to meet the significant challenges touched on above. That concern will drive forward policy changes at both local and national levels.

When these globalised factors are considered together with the urgent and pressing need to tackle the climate crisis head on with some positive and affirmative action along with other policy changes, we will see a drive towards a significant recalibration of the urban logistics and multi-let industrial sector across the UK. Our manufacturing base and supply chain will become more localised to the UK. The nature, extent and scale of what we grow, produce and consume locally will change. The consumer base will continue to demand that corporate entities and suppliers increasingly start to take positive action to address the climate crisis and part of that action will inevitably drive a deep dive into and analysis of the supply chain operated by all UK businesses. The development market will inevitably respond to these changing fundamentals, and we are seeing that locally in Scotland with some significant new urban logistics development being kicked off by Chancerygate and Bridges Fund Management to create Grade A best in class industrial space in one of Edinburgh's prime industrial locations. Others will follow to quickly plug the obvious supply side gaps.

In the last 12 months we have been delighted to have been able to support Urban Logistics REIT Plc and work with colleagues at various English law firms on a number of cross border UK portfolio acquisitions, and also financings involving urban logistics assets in Perth, Glasgow, Aberdeen, Motherwell and Paisley. Those deals are undoubtedly driven by some of the factors that I have touched upon, especially the growth of online and third party logistics operators, but also the recognition that with strong occupier demand in the sector both income and capital returns for investors from well let assets will remain robust.

In the multi-let sector we recently acted for Caisson and Patrizia on their acquisition of the well located Belleknowes Industrial Estate in Fife, again evidencing the demand for assets in a sector with some restricted supply and which has been able to withstand the impact of Covid-19 and retain robust levels of rental collection.

With funds continuing to be raised by UK and overseas investors for deployment in the urban logistics and multi-let sectors in the UK, and the US private equity houses increasingly seeking to scale up and leverage their exposure to the sector across multiple geographical areas, it is very difficult to see a slowdown in UK investment activity in this area any time soon.

On the corporate occupier side we were delighted to have been able to support Valneva in their acquisition and subsequent development of a new manufacturing facility in Livingston to allow the development and manufacture at scale of a vaccine to combat Covid-19. Again, this increasing occupier activity seems to be a direct response to not only the public health crises, but also a consequence of the need to reimagine a more resilient supply chain within the UK to address these wider macro trends and risks. That occupier activity and focus on more resilient supply chains and risk management is reflected across our client base in the food and drink, energy, manufacturing and financial services sectors, which are of course all hugely important to the growth and development of the Scottish economy.

With UK and overseas investors now focusing on a narrower range of real estate sectors and ongoing uncertainties in the office and retail arenas, while property fundamentals remain solid due to robust rent collection and occupier demand, it's difficult to see an end to the rise of the urban logistics and industrial sector as a resilient and rewarding asset class in the UK real estate market. If anything, the breadth and pace of change driven by some of these macro issues will only accelerate over the coming economic cycle, creating new development opportunities and investment product.


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