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Goodman Industrial Investment Market Review

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Robbie Bennett

on 10 December 2015

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Transcript of Goodman Industrial Investment Market Review


What's Driving Demand in the Occupational Market
A Quick Run Through
Rental Growth Story
Projections for 2016
What's Driving demand in the Occupational Market?

Current Supply & Constraints

Rental Growth Story

Investment Market Overview

Projections for 2016
Industrial Investment Volumes 2015
Q1 - £1.1bn
Q2 - £1.7bn
Q3 - £1.3bn
Q4 - £0.58bn available & £1.13bn under offer

2014 Total - £6.6bn
2015 Total - c£6.0bn thus far
Research suggests......
In 2010,

of UK car production was by premium manufactures. This is projected to rise to

. Only Germany produces more premium cars.
Current Supply & Constraints
Developers responded to lack of supply with spec developments

More stock needs to come to the market to keep up with demand

c1.5m sq ft
of completed spec development on the market within
8 buildings

A further
8m sq ft
is currently under construction or due to commence on site shortly within
42 buildings
Biggest issue on the UK logistics agenda currently is rental growth

After years of muted increases, rental growth is now firmly back on the agenda with investors keen to take advantage of the current market.
All quoting
sq ft, up
on the £5.75 sq ft that was being quoted 18-24 months ago for prime space,
quite a jump
In real terms - strip inflation out, prime rents in the Midlands currently stand circa
down on what was being achieved twenty years ago.

Therefore, despite the recent upswing in rents in the sector, there is
still more to come
particularly if the supply/demand imbalance continues.
Logistics Breakdown
The logistics investment market -
deployed in Q1-Q3

above the 10 year average
Investors continually desire for yield in a low income environment we anticipate
further new entrants
to the sector.
Logistics Pricing
actively trying to deploy capital into the sector
, convinced by the occupational demand story, which in turn has been driven largely by the by technology and changing consumer habits

Lot sizes fail to match those available in both the office and retail sector,
Has not deterred the institutional investors who are seeking secure long-dated income as well as looking to
capitalise on the rental growth story

Volumes for Q1-Q3 of £2.5bn are in line with those seen last year,
Pricing continued to improve,
yields have compressed further

deals completed this year at
sub 5.2%
net initial yield (NIY) with the average yield on lot sizes of £20m or greater plummeting to

With so much capital targeting the sector, aggressive bidding has taking place on stock when brought to the market creating significant yield compression/price growth.

Standard Life’s
(NIY) forward funding deal of a new 638,000 sq ft John Lewis DC set a new benchmark earlier in the year, but L&G’s purchase of a Waitrose unit in Chorley, Lancashire at
(NIY) has since beaten this.

Moving forward we anticipate certain institutional investors to look more towards forward funding schemes (Aviva, M&G etc) to take advantage of the development yield discount over the current open market yields.

Logistics assets, generally larger average lot size, at
£20.3 million
compared to standard industrial assets with an average value of
£8.5 million

Logistics attract a more
specialist base of private investors
than standard industrials given the financial commitment

Historically, logistics have tended to be held by the larger investors, particularly institutions

There is a
growing number of REITs
through specialist property companies and sovereign investment funds
H1 Logistics Transactions
Q3 Logistics Transactions
Currently just one building over 500,000 sq ft...
On average, 75% of all deals done since the start of 2014 have been for space netween 50,000-250,000 sq ft

Nearly 300 deals completed in this size bracket, compared to approximately 50 of 250,000 sq ft or greater.
Investment Market Overview
Employment levels are
reaching record levels
, LA's are allocating employment land more sparingly.

As a consequence, employment land in prime distribution markets is in
short supply
and driving up both
land values
and price for build-to suits.

Eagle Farm, MK - Gazeley rumoured to have paid
£1.25m per acre
plus profit share.

shortage of lorry drivers
. Good distribution locations will need good labour profiles.
Hermes signed for 260,883 sq ft d&b at Rugby Gateway on
34 acre site
The four largest shopping markets in the world (UK, China, UK and Germany)
Will collectively grow by £320bn
Doubling to £645bn by 2018
Online currently accounts for just


of total retail spend
The impact that this has had on the logistics sector thus far, and with a further

growth to come in the next 5 years
The significance of this growth becomes apparent and cannot be ignored
UK parcel sector is £8bn and rising (according to Apex Insight)
These occupiers on occasion require purpose built facilities and large yards to handle volume of items.
UK Mail signed for 231,000 sq ft at Prologis Ryton. As many as
24,000 parcels
can be processed each hour.
Demand will also come from the UK’s automotive industry
A recent report by the Society of Motor Manufacturers concluded that more cars will be built in Britain than ever before by


(current record for UK-produced cars is

in 1972).
We currently produce
cars a year
The UK will be the 3rd largest car maker in Europe
Only 11 buildings over 300,000 sq ft available nationally
LogiCor's Sherburn 550
Approx 25 deal have been D&B
(over 250,000 sq ft)
Chrome 102 - (102,750 sq ft)
Silver Bullet - (144,996 sq ft)
Unit B Northampton CP - (161,709 sq ft)
Rents on the rise from supply/demand imbalance
DPD Hinkley
350,000 sq ft
165,000 sq ft
Working Together
Working Together
Development Sites & Funding Partners

Market Intelligence - Quarterly UKIT & Industrial Focus

Identify the growth areas (rents, yields, locations)

Our Intelligence...
...Your Knowledge
Wrapping Up...
2015 - Good year for industrial

- Pricing likely to continue through to Q1/Q2

- Focus on Portfolios in Q4


- Rental Growth Story

- More Spec Development

- Increasing appetite on funding opportunities

- More entrants to the market
Full transcript