Much has been written recently regarding the problems in the office and retail sector of the commercial real estate market. Little has been said, though, about the potential opportunity in the logistics sector.
Demand for logistics space, and last mile delivery service space, reached a crescendo during the Covid-19 pandemic and, since then, it has continued to remain robust. Current levels of light industrial and logistic take-up still exceed the pre-pandemic average and are significantly higher than from just five years ago.
However, there is a scarcity of these types of buildings being developed at present in Northern Ireland. Where there is demand and a lack of supply, simple economics mean there is a resultant rise in rental and capital values.
Rental values have to rise simply to counteract the increased costs of building modern warehousing, which now requires extended eave heights and massively improved build specifications due to modern storage and production uses.
Recent commentary regarding the need to create sustainability in the office market is also true with the logistics sector. Legislation is on its way which will mean that minimum Energy Performance Certificate (EPC) levels will be required, probably in the next five years, on light industrial and storage space.
Unless we start to develop and retrofit logistic and manufacturing buildings to become carbon-efficient and energy-efficient, landlords and owners will not be able to lease or sell their assets.
Modern warehouse space rentals in the remainder of the UK and Dublin are regularly between £10 to £14 per sq ft, whilst historically in Northern Ireland the highest rentals have been much lower in the range of £5 to £6.50 per sq ft.
Northern Ireland has seen a dearth of logistics construction over the last 10- to 20-year period and we may be missing a massive opportunity for this sector. If we do not provide our own logistics space it will be satisfied by the remainder of the UK or by the Republic, with the inevitable increase in road traffic from each.
We believe the logistics sector is probably the first sector that will see potential investors reacting to the reforming of the Northern Ireland Executive and the implementation of the Windsor Framework.
The current benefits of establishing your business in this region mean that you can sell goods to both GB and EU sectors without custom forms, declaration rules of origin issues, and tariff barriers.
Northern Ireland manufacturers can produce products using EU inputs without having to import them. They can also benefit from international trade deals signed by the UK Government and can improve efficiency by having both their manufacturing and distribution operation in the region. To take advantage, however, we need to build modern production and warehousing space.
Pharmaceutical producers and suppliers can also benefit substantially by having one single licence to trade in the UK and the EU without the need for multiple licences.
We believe there is a major opportunity to build in the light manufacturing and logistics sector, especially around ports, airports and the road corridor between Belfast and Dublin.
Build costs and lack of available land with planning can hinder such development but we believe there will be a significant shift towards retrofitting existing industrial and warehouse units, whilst retaining the steel frame, but recladding and reroofing with sustainable and more energy-efficient materials.
Those developers and property owners who move to refurbish such space may well seek the benefits of substantial increases in rents receivable and potential levels close, or equal to, those already detailed above in the UK and Republic of Ireland markets.
Recent research at CBRE NI details approximately 1.75 million sq. ft. of requirements in this sector, many being led by the supermarket and food supply chain but also pharmaceutical supplies and last mile delivery carriers.
It is a sector which we will report on and look at very closely over the coming months and years, and it is one where we see “first mover advantage and rewards”.
To coin a phrase, watch this space.
- Brian Lavery is managing director at CBRE Northern Ireland
