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UK boom in super shed construction

With an area twice the size of Hyde Park slated to be constructed this year alone, distribution centres are enjoying a boom as online shopping sales continue to soar. According to Knight Frank, nearly 37m sq ft of warehouse space will be constructed in 2021, up from 23m sq ft in 2020.

Investment in super shed construction has also more than doubled since 2020, standing at a record £6bn in the first half of the year and up 54% on the previous record in 2018. Inward investment from the US, Europe, Korea and China accounted for over 50% of investment in the latest distribution centres.

Mega-shed

The announcement that John Lewis is to lease a 1m sq ft warehouse from Tesco in Milton Keynes reflects their growth in online sales, up from 40% pre-pandemic to 60% this year. The mega-shed will employ 500 people and become the second biggest UK distribution centre after neighbouring Magna Park.

Online sales now make up 39% of all sales in the UK, and it estimates that the UK will need to increase its warehousing space by 14% to meet increased demand. Unsurprisingly, Amazon is a big presence, with 18 letting deals since the start of 2021. That compares with 19 deals signed during the whole of 2020. Their latest deal, worth £97m, saw the online retail giants sign a lease spanning 20 years on a 700,000 sq ft site in Magna Park.

James Seppala, the head of real estate for Europe at Blackstone, says the demand for warehouse space is Europe-wide, driven by meaningful increases in online demand. This in turn is keeping vacancy levels at historic lows and driving market rental growth and massive construction levels. Amazon alone is involved in construction projects totalling over 12m sq ft including its major 2.5m sq ft development in Gateshead.

Not just cardboard boxes

But the supersheds aren't just about cardboard box deliveries. Berry Bros & Rudd has commissioned Goodman to break ground on a 117,500 sq ft warehouse for wine and spirits storage. Data centres are another factor in the market, with the UK boasting the second largest data information hub outside Virginia in the US.

Segro is the UK's largest warehouse and date centre builder, with clients including Focus Logistics, DHL, DPD and the London Ambulance Service. Their biggest centres are in the West Midlands, where a diverse client list includes last-mile logistics companies and grocery delivery startups like Gorillas and Zapp.

So successful is the sector that it's attracting investment from private equity groups, attracted by the rapid growth in rental income. Canadian investor Oxford Properties has teamed with Logistics Capital Partners to develop a £1bn logistics hub near Birmingham with plans for sheds of up to 1m sq ft.

Other investors, like British Land, are diversifying away from shopping malls and commercial offices into retail parks and warehouses. And while there is some local opposition to developments that threaten the Green Belt, it hasn't dampened the enthusiasm of global investors. According to Marcus de Minckwitz, head of Savills industrial and logistics team Europe, global investors have put supersheds top of their shopping list, and that's good news for developers and investors as distribution centres deliver superior RoI as rents continue to rise along with demand.

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