High Bay warehouses quarter 2

Citation

(1999), "High Bay warehouses quarter 2", Property Management, Vol. 17 No. 1. https://doi.org/10.1108/pm.1999.11317aab.015

High Bay warehouses quarter 2

High Bay warehouses quarter 2

Keywords Property investment, Statistics

Since the midpoint of 1997, institutional holdings in High Bay Warehouses have risen by over 40 per cent, driven largely by sale and leaseback transactions, according to the latest research by CB Hillier Parker. As a comparatively new market it has taken time for investors and analysts to develop an understanding of the high bay market and the dynamics that generate demand. Historically, therefore, property investors have adopted a cautious approach.

Guy Frampton, Director of CB Hillier Parker, comments: "The 40 per cent rise in institutional holdings over the last year is a clear indication that the sector is losing its mystery, at least within the more established high bay markets of the Midlands, South-East and North-West. Aside from location, the nature of theoccupier is a key influence in the decision to invest. Retailers such as Sainsbury's, Tesco and Argos occupy 40 per cent of institutional holdings".

A total of 1.2 million m² (12.9 million sq. ft) is now owned by institutions, representing 26 per cent of current operational stock. This compares with 20 per cent at the end of 1996.

Institutions continue to pursue ownership via the purchase of existing stock occupied bv a strong covenant, remaining cautious with respect to speculative development. With occupiers less reluctant to agree leases of ten years or more, the gap between tenant and landlord is finally beginning to close.

In the first half of 1998 the High Bay Warehouse market experienced growth of over 10 per cent in operational stock, 21 warehouses totalling 466,550 m² (5.02 million sq. ft) were opened. Nationally, of the 16 qualifying deals to have transacted during the first six months of 1998, 14 are located in either the Midlands or the South-East, emphasising the continued dominance of these markets within the sector. Almost two-thirds of operational stock is located in these regions.

According to CB Hillier Parker research analyst, Deborah Savin: "Over the last six months rental growth has largely been confined to the South-East, averaging 4 per cent per annum during this period. In locations such as Heathrow to the west of central London, rental growth has exceeded 10 per centper annum for the last 12 months. With several key deals in the pipeline, the rental growth seen in the South-East over the last year is set to continue into 1999. Elsewhere, at present there are few signs of significant increase".

Land values have risen by an average of 5 per cent in the 12 months to August 1998, with growth concentrated in the South-East, Midlands and Scotland. Furthermore, with planning authorities favouring the development of more flexible multi-unit schemes, particularly in the South-East where land supply is limited, availability of good quality well-located sites will become more restricted, ensuring continued growth in land values during the next 12 months. This has hardened developers' resolve to seek pre-letting opportunities rather than dispose of freehold land.

Despite the increased confidence on the part of institutional investors, prime yields have seen limited movement during the last 12 months, the current prime yield is 6.75 per cent. The average High Bay Warehouse yield of 7.6 per cent has fallen gradually over the last two years from 7.9 per cent, a movement in line with the all property yield which currently stands at 7.3 per cent.