Northern Industrial Markets
Post-pandemic, the industrial and logistics sectors in Northern England have undergone significant transformations, reflecting a nationwide shift towards more sustainable and efficient operational practices. These changes are pivotal for the regional economy and align with broader movements towards supply chain optimisation and environmental sustainability.
In 2023, the market indicated a move towards balance in the industrial and logistics sectors after a period of high activity, with 2022 marking the second-best year for total uptake despite looming economic uncertainties. Into 2024 the focus among occupiers has shifted towards space optimisation and supply chain resilience, influenced by disruptions and a growing emphasis on sustainable operations.
Multi-let Sector: In the multi-let industrial sector, there is an increasing demand for smaller, flexible units that can cater to various operational needs. This trend is driving investments in property enhancements to appeal to a diverse tenant mix. However, the sector struggles to meet the high demand for such adaptable and modern spaces, especially those that meet environmental, social, and governance (ESG) standards.
Distribution/Logistics Sector: The distribution and logistics sector is prioritising quality and location, focusing on eco-efficiency and strategic positioning to enhance supply chain efficiency. The demand for prime, sustainable properties is exceeding supply, leading to rental growth and continued pressure for new development. Despite a cautious approach from major occupants like Amazon, the pursuit of ESG-compliant and strategically situated properties continues to shape market dynamics.
The multi-let and distribution/logistics sectors in Northern England are evolving with a focus on quality, sustainability, and strategic location. The market is responding to post-pandemic operational shifts, ESG commitments, and the continuous need for supply chain resilience, setting a foundation for sustained growth and development within these sectors. Cost pressures on new development has continued to drive investment in repositioning and retrofitting of older assets.
At IDRE, ESG is at the heart of our thorough asset management approach. Understanding how to achieve improved EPC’s, aligning ESG with the CSR and Carbon Reduction Plans of occupiers and potential purchasers, cost effectively, are all essential to driving improved returns in your property investments. By fully understanding emerging regulations, investor targets and market dynamics, we aim to significantly improve the ESG credentials of assets
The sustained rental growth in Northern England's industrial locations can be attributed to multiple factors, accentuated by their rising popularity as prime industrial spots. Key aspects contributing to the prime rents achieved in the graphic include:
Demand and Supply Dynamics: Northern England's industrial areas are experiencing a notable surge in demand, spurred by the expansion of e-commerce, evolving consumer behaviours, and the necessity for businesses to optimise their logistics frameworks. This demand is contrast against a backdrop of limited supply, driven by scarce land availability and planning constraints, leading to an upward trajectory in rents.
Economic and Structural Shifts: The market is witnessing structural transformations, notably the move towards online retailing and the critical need for logistical efficiency. These shifts are channelling investor and occupier focus towards strategically located prime locations, bolstering rental growth.
Regional Attractiveness: The regions of the North West, Yorkshire and the Humber, and the North East have emerged as particularly appealing due to their competitive rental rates, making them attractive to cost-conscious occupiers. Their strategic geographic positions, serving as logistical connections, further enhance their desirability.
Inward Investment: The positive revision of rental growth expectations renders these regions more enticing to investors seeking robust returns. This allure is anticipated to attract more capital to the sector, creating further investment and development activities.
Resilience and Diverse Occupier Base: The resilience of the industrial and logistics sectors amidst economic uncertainties, coupled with a diversifying occupier base, underscores the sustained demand and rental growth. Manufacturing firms, less constrained by locational dependencies, contribute to this diversification.
The popularity of these Northern England areas as industrial locations is not merely a function of their economic performance but also reflects broader regional advantages. These include excellent transport and logistical links, a skilled workforce, and a supportive local government policy framework aimed at nurturing industrial growth. Moreover, these areas offer significant space for expansion, a critical factor for logistics operations, manufacturing plants, and warehousing needs. The strategic importance of these regions, positioned as they are at the heart of the UK's transport network, provides seamless connectivity to national and international markets, making them highly attractive for businesses aiming to optimise their distribution and supply chain operations.
ESG Credentials
Industrial estates are increasingly recognised for their potential to enhance Environmental, Social, and Governance (ESG) credentials, moving away from their traditional image as challenging environments for sustainability. The journey towards a sustainable industrial estate encompasses a comprehensive strategy, focused on several key areas:
Sustainable Transport Plans
Creating a sustainable transport infrastructure involves:
Conducting comprehensive surveys to understand the commuting habits of workers and identifying areas for improvement.
Promoting public transport, carpooling, and cycling through improved accessibility, secure bicycle parking, and incentives.
Installing electric vehicle (EV) charging stations, potentially powered by on-site renewable energy, to encourage the use of cleaner vehicles. The UK's "Transport Decarbonisation Plan" aims for net-zero domestic transport emissions by 2050, with a pledge to end the sale of all new polluting road vehicles by 2040 and net-zero aviation emissions by 2050.
Energy Efficiency
To reduce energy consumption, industrial estates can:
Upgrade to energy-efficient lighting in common areas and warehouses.
Implement smart energy management systems.
Invest in renewable energy, such as solar panels, to not only cut costs but also contribute to the grid.
Biodiversity and Green Spaces
Enhancing biodiversity involves:
Creating green spaces and wildlife corridors.
Planting native species to support local fauna.
Implementing eco-friendly landscaping practices to improve the aesthetic appeal and contribute to local biodiversity and employee wellbeing.
Water Conservation
Water conservation strategies include:
Installing water-efficient fixtures.
Harvesting rainwater for landscaping.
Implementing sustainable drainage systems (SuDS) to manage runoff and reduce flooding risks.
Waste Reduction and Recycling
A comprehensive waste management strategy is crucial for:
Reducing landfill waste.
Encouraging recycling and exploring opportunities for waste to be reused or recycled within the estate.
Sustainable Construction and Maintenance
For new developments or refurbishments, sustainable construction techniques and materials significantly reduce environmental impacts. This includes:
Using recycled materials and designing buildings to be energy-efficient.
Collaboration and Engagement
Achieving ESG goals requires collaboration between estate owners, tenants, and local communities. This can be facilitated through:
Green leases that include environmental clauses.
Working with local authorities and environmental organisations for resources and expertise.
Economic Benefits and Government Support
Incorporating tenant requirements into sustainability efforts not only enhances ESG credentials but also brings tangible economic benefits. This includes enhanced tenant attraction and retention, increased rents, improved investment values, competitive advantage, and access to financial incentives such as green financing and government grants. The UK government's commitment to achieving net-zero carbon emissions by 2050 underpins these initiatives, offering a policy framework that supports sustainability efforts across industrial estates.
The integration of these practices not only contributes to environmental sustainability but also enhances social wellbeing and demonstrates governance through responsible management. As sustainability becomes increasingly important to consumers, employees, businesses, and investors, industrial estates that proactively improve their ESG credentials are likely to see a positive impact on occupancy rates, rents, and investment values, aligning with broader sustainability goals and government targets.
North West
KEY AREAS
Trafford Park
Atom Valley (Heywood, Stakehill, Rochdale)
Airport City
Warrington
Liverpool
Cheshire
Stockport
Overview
The North West of England stands as a beacon for industrial growth and logistics efficiency in the UK. Thanks to its excellent transport network—including major motorways like the M6, M62, and M56, Liverpool and Manchester airports, and the Port of Liverpool —this region offers seamless connectivity for businesses aiming for both national and global reach. This strategic advantage is bolstered by the North West's access to a skilled labour pool, making it a prime location for logistics, distribution, and manufacturing sectors.
Market Dynamics
In 2023, the North West industrial sector witnessed a remarkable surge in investment, with figures reaching approximately £1.46 billion, indicating a significant leap from the previous year's £900 million. This level of investment, despite a number of large-scale acquisitions skewing the figures, underscores a robust interest in the region's industrial assets. While the supply of quality spaces has slightly improved in the latter half of 2023, the demand continues to outstrip supply, keeping the market competitive and dynamic.
Demand
The demand for large "Big Box" industrial units saw a recalibration, aligning closer to pre-pandemic levels with a take-up of 2.73 million sq ft—a notable deviation from the five-year average. Conversely, smaller mid-box and multi-let industrial (MLI) units maintained their strong appeal, with take-up rates surpassing average figures and highlighting the market's diverse demand spectrum. The increase in rents, particularly in prime "Big Box" segments reaching up to £10 per sq ft, mirrors the intense competition and high demand for premium spaces.
Forward Outlook
The North West's industrial market exhibits resilience, buoyed by structural shifts including the e-commerce boom, strategic supply chain adjustments, and a pivot towards domestic manufacturing. These undercurrents are anticipated to drive sustained market activity. The evolving landscape also places a premium on sustainability and environmental considerations. Increasingly, both investors and occupiers prioritise green credentials, energy efficiency, and ESG (Environmental, Social, Governance) factors, signalling a shift towards more sustainable industrial practices.
IDRE believe the North West of England will remain a key hub for industrial and logistics operations, offering strategic advantages that will continue to attract significant investment and demand. As the market evolves, addressing supply constraints and integrating sustainability into development strategies will be crucial for sustaining growth and leveraging the region's full potential.
Yorkshire
KEY AREAS
Leeds
Huddersfield
Wakefield
Bradford
Sheffield
Doncaster
Normanton
Overview
Yorkshire is a region celebrated for its industrial resilience and logistical prowess within the UK. It benefits from a strategic position that has consistently attracted businesses. With its well-established transport infrastructure, including key motorways and proximity to major ports and cities, Yorkshire offers compelling connectivity options for national and international trade. This is further complemented by the region's access to a diverse labour market, positioning Yorkshire as an ideal location for distribution, manufacturing, and logistics operations.
Market Dynamics
The year 2023 was a period of significant activity and growth for Yorkshire's industrial market. South Yorkshire reported a strong preference for industrial units under 250,000 sq ft, mainly driven by distribution firms, which accounted for an annual take-up of 1.3 million sq ft. Conversely, West Yorkshire witnessed a resurgence in industrial take-up, climbing to 1.6 million sq ft, buoyed by the influx of new speculative spaces.
A notable shift towards quality and prime locations characterised the market dynamics in 2023. The region is projected to see an average increase of 3.3% in rental rates, with Sheffield and Leeds expecting growth rates of 4.06% and 3.48%, respectively. This underscores the market's evolution towards premium, sustainable spaces that align with rigorous ESG standards.
Demand
The Yorkshire industrial sector's landscape in 2023 was defined by several strategic transactions. In South Yorkshire, significant deals included Gem Imports acquiring 186,000 sq ft at Arrow 186 in Barnsley, Butternut Box securing 132,750 sq ft at Symmetry Park in Doncaster, and JLA taking up 109,000 sq ft at Mirastar’s new Catalyst development at J33 M1. These transactions highlight the strong demand for high-quality industrial spaces.
West Yorkshire & the Humber also saw noteworthy activity, with Advanced Supply Chain's pre-let of 230,000 sq ft at Super B Cleckheaton and XPO Logistics moving to a 211,364 sq ft space at Voltaic in Wakefield. These movements signal a 'flight to prime' within the industry, as businesses seek well-located developments with excellent motorway links and high ESG credentials.
Forward Outlook
The Yorkshire industrial sector is set to maintain its trajectory of rental growth. Sustainability and ESG considerations are becoming increasingly pivotal, with businesses and investors prioritising environmental efficiency, green credentials, and governance.
IDRE remain bullish about Yorkshire's role as a critical hub for industrial and logistics activities. The strategic advantages offered by the region are anticipated to continue drawing significant investment and interest. Despite refurbished assets with improved ESG factors becoming available along with new build alternatives, the leasing market will continue to grow with demand still outstripping supply.
North East
KEY AREAS
Team Valley
Teeside
Tyne Tunnell
Gosforth
Newcastle Business Park
Stockton
Overview
The North East of England distinguishes itself as a key industrial and logistics hub, underpinned by its strategic location and comprehensive transportation network. Featuring crucial roadways such as the A1 and A19, proximity to the Port of Tyne, and access to Newcastle International Airport, the region boasts excellent connectivity on both a national and international scale. This logistical advantage is complemented by the North East's rich pool of labour, positioning it as an attractive choice for businesses in the manufacturing, distribution, and logistics fields.
Market Overview
Throughout 2023, the industrial market in the North East saw a notable influx of investments, reaching upwards of £780 million, a significant uptick from £520 million the previous year. This increase in investments, even accounting for a few large transactions, points to a growing interest in the industrial capabilities of the region. Although there has been a slight improvement in the supply of quality industrial spaces, demand consistently outpaces supply, leading to a dynamic and competitive market landscape.
Demand
There was a noticeable realignment in the demand for substantial "Big Box" industrial spaces, with a take-up totaling around 1.8 million sq ft, reflecting a return to more traditional levels of interest. This contrasts with the persistent high demand for smaller, flexible units, emphasising the broad spectrum of market demand. Rental rates for prime industrial spaces have escalated, with premier locations seeing rates around £8.50 per sq ft and up to a high of £10.00 per sq ft, indicative of the intense competition for high-quality spaces.
Future Outlook
Driven by the trend of increased demand for industrial and manufacturing units across the available size brackets, the North East industrial sector is set for ongoing growth. The sector is increasingly influenced by a commitment to sustainability and ESG principles, with investors and tenants alike prioritising properties that meet high environmental and governance standards.
IDRE remains optimistic about the North East's status as an indispensable centre for industrial and logistics operations. It provides high quality stock at a discount to most other UK centres. The unique advantages of the region are expected to keep drawing substantial investment and attention.
Midlands
KEY AREAS
Birmingham
Coventry
Leicester
Wolverhampton
Derby
Nottingham
Northampton
Stafford
Overview
The Midlands region, nestled at the heart of the United Kingdom, stands out as a dynamic centre for industrial and logistics businesses, propelled by its strategic geographical positioning and a comprehensive network of transportation links. The region's infrastructure, highlighted by key motorways such as the M6, M1, and M42, along with proximity to major freight rail hubs and central airports, offers unparalleled connectivity across the UK and beyond. This logistical prowess is further enriched by the Midlands' extensive and skilled labour force, making it a prime destination for sectors ranging from manufacturing to distribution and logistics.
Market Overview
The year 2023 marked a period of vigorous activity and growth within the Midlands industrial market, with investments soaring to an impressive £2 billion, significantly up from £1.2 billion in the preceding year. This bullish investment climate, even when adjusted for a handful of substantial transactions, illustrates the vigorous appetite for the industrial potential of the Midlands. The supply of premier industrial spaces has moderately increased, yet the demand remains robustly high, signalling a lively and competitive market environment.
Demand
The Midlands witnessed a continued demand for large-scale industrial facilities, with a remarkable take-up exceeding 3 million sq ft. This sustained demand underscores the region's strategic importance and its ability to cater to a diverse range of business needs. Additionally, there's a heightened interest in smaller, versatile industrial units, showcasing the varied demand within the market. Rental prices for prime spaces have escalated, with top locations commanding rents upwards of £12.00 per sq ft, reflecting the tight competition for quality spaces in strategic locations.
Future Outlook
The Midlands industrial market is poised on the brink of sustained expansion. Again the market is becoming increasingly influenced by sustainability and ESG criteria, with a growing preference for environmentally efficient, green-certified buildings from both tenants and investors.
The IDRE forecasts that the Midlands will maintain its critical role as a hub for industrial and logistics activities. The strategic benefits offered by the region will continue to see demand outstripping supply. Investors and developers will continue to provide a pipeline of new and refurbished assets with tenants having to act quickly in the prime locations.