Research (Professional Only)
Multi-let industrial estates: more than just your average manufacturer
What is a multi-let industrial asset? Located near urban areas, estates are comprised of different sized units let to multiple occupiers and are usually under single ownership.
16 July 2014
What is a multi-let industrial asset? Located near urban areas, estates are comprised of different sized units let to multiple occupiers and are usually under single ownership. The function of these assets is to provide affordable space for a wide range of activities. Tenants include those associated with lower-skilled or high-tech manufacturing, wholesale, transport and construction. There are some regional specialisms: manufacturing in the North West and the Midlands, high-tech firms in the East of England and wholesalers, communications and transport in London and the South East.
What drives demand for space on industrial estates?
The UK economy continues to improve with each passing quarter, but how and why has this translated into demand for industrial space? At 66 million sq ft, take up of units on multi-let estates was robust in 2013, with new lettings up 21% year-on-year for units below 100,000 sq ft1. Encouragingly; increased levels of activity were recorded across all UK regions, with the exception of the North West. The reason behind this uptick in demand is the strengthening and diversification of the tenant base. Manufacturing has been a traditional driver of requirements for standard industrial space. In long-term decline in many developed economies, output from UK firms has proven to be (relatively) more resilient due to the strength of its key industries. The automotive sector has been one recent British success story; car production is now back to pre-recession levels2(Figure 1) and brands such as Nissan, Mini, Rolls Royce and Jaguar Land Rover are investing in new plants and storage in the UK. This additional capacity also generates demand for floor space further down the chain. For instance, suppliers are often located close to warehouses to assist ‘just in time’ delivery commitments.
An interesting feature of the UK manufacturing sector is the geographical clustering of companies producing similar goods. Examples include aerospace in Lancashire, precision engineering in Gloucestershire, car and motorsport production in Birmingham and life sciences in Berkshire and Surrey. Being in close proximity benefits firms by facilitating the sharing of technology, knowledge and suppliers. This means a diverse range of buildings are required in one local area for functions such as research and development, production and delivery.
Manufacturing is more than just making things
Multi-let is not just reliant on manufacturing; it has also been a direct beneficiary of the esurgence in parcel deliveries. The advent of the internet and e-commerce had a huge structural impact on both the traditional postal system and the retail market. However, the number of parcels from online retailers increased by 3.7% per annum between 2008 and 2013 and volumes are forecast to grow by a further 3% per annum out of 2018 (Figure 2)3. A reduction in expected delivery times has created demand from parcel operators for multi-let space close to large urban areas and transport systems; they will often compromise on a bespoke hub over location.
Two further developments that will positively influence demand for multi-let estates are ‘3D printing’ and ‘re-shoring’. 3D printing, or additive manufacturing, is a technique that builds solid objects using a digital file as a reference point. Whilst still very much in its infancy, this process has the potential to generate future requirements for space in the production and delivery of the printer, its base materials and final outputs.
Finally, there is increased evidence of ‘re-shoring’ by domestic firms such as Dyson, Hornby and
John Lewis; the repatriation of industrial production back to the UK from overseas. In 2013, 15% of companies surveyed by the Manufacturing Advisory Service reported they have or are re-shoring, compared to 4% actively off-shoring 4 Rising wages in many countries, particularly China, alongside a desire to control quality and reduce lead times have driven this turnaround.
1 Industrial Property Trends Today. JLL, 2014
2 The Society of Motor Manufacturers and Traders, 2014
3 The Outlook for UK Mail Volumes to 2023. PwC, 2013
4 MAS Barometer. Manufacturing Advisory Service, 2013
The views and opinions contained herein are those of Eleanor Jukes, Senior Property Research Analyst, Schroders and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds.
For professional investors and advisors only. This document is not suitable for retail clients.
This document is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroder Property Investment Management Limited (Schroders) does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that Schroders has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Schroders has expressed its own views and opinions in this document and these may change. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions. Any forecasts in this document should not be relied upon, are not guaranteed and are provided only as at the date of issue. Our forecasts are based on our own assumptions which may change. We accept no responsibility for any errors of fact or opinion and assume no obligation to provide you with any changes to our assumptions or forecasts. Forecasts and assumptions may be affected by external economic or other factors.Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them can go down as well as up and may not be repeated. Issued by Schroder Property Investment Management Limited, 31 Gresham Street, London EC2V 7QA. Registration No. 1188240 England. Authorised and regulated by the Financial Conduct Authority. For your security, communications may be taped or monitored.
Important Information: This communication is marketing material. The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value of an investment can go down as well as up and is not guaranteed. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. Regions/ sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this material include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change. To the extent that you are in North America, this content is issued by Schroder Investment Management North America Inc., an indirect wholly owned subsidiary of Schroders plc and SEC registered adviser providing asset management products and services to clients in the US and Canada. For all other users, this content is issued by Schroder Investment Management Limited, 31 Gresham Street, London, EC2V 7QA. Registered No. 1893220 England. Authorised and regulated by the Financial Conduct Authority.