New Study about the open storage market activity by Carter Jonas - 2024
RISING DEMAND FROM A BROAD RANGE OF OCCUPIERS DRIVES OPEN STORAGE MARKET ACTIVITY
A broad occupier base, including demand for electric vehicle (EV) charging sites, is fuelling rising interest in the open storage sector, national property consultancy Carter Jonas has found.
Research from its new Open Storage Update 2024 illustrates that this interest is in sharp contrast to three years ago when open storage assets were almost entirely absent from property investment portfolios.
Occupier activity has increased significantly over the last three years with enquiries for open storage sites in 2023 up by 29% on the previous year, and by nearly 300% on 2020. Heightened demand is driving investor interest and open storage is now attracting a range of purchasers.
Andy Smith, Partner and Open Storage lead, Carter Jonas, said: “Drivers of demand continue to advance with a variety of emerging industries/ uses that can be accommodated with open storage sites. As an example, the growing demand for EV charging facilities.
“The next growth sector is likely to be battery storage. Few technologies are as compact and occupy as little space as BESS - Battery Energy Storage System. BESS is well suited to installation on small parcels of brownfield land, especially in industrial areas, as generally, there is less concern around the visual impact of the development. As more renewable energy sources become operational, requirements for BESS, and for land to house this technology, will become ever more important.”
Having analysed the rapidly changing nature of enquires relative to the type of supply, Carter Jonas has evolved its four-tier classification index for open storage sites. This system is based upon key characteristics, including surfacing, planning, accessibility, services and facilities. Class 1 provides the highest specifications and is typically fully concreted, has unrestricted B8 use, is easily accessible, fully serviced with water, electricity and drainage and is highly secure.
Rents for Class 1 sites have continued to increase over the last 12 months, though the rate of growth slowed. Increases have been led by London and the inner South East, at 3.3% over the six months to spring 2024, and by 9.5% over the last year. Meanwhile, growth across the regional locations has been more restrained, averaging 0.7% over the last six months and 2.1% over the last year.
Since 2016, Class 1 rents in London and the inner South East have risen by an average of 18.9% per annum, whilst the regional markets have seen a broadly similar rate of growth of 18.1% per annum. This deceleration in the rate of rental growth has been particularly marked in the regional markets, where high growth rates represented an element of catch-up with the London / inner South East and were starting from very low base rents.
On the investment front, a notable increase in the number of open storage transactions in 2023 indicates that the market is maturing as an institutional asset class. It is also enabling market pricing to be tracked more closely, showing that the open storage sector reflected the upward yield movement seen across the broader industrial market in 2023.
There is a clear pricing differential by location, with London and the inner South East trading at a yield circa 150 basis points lower than the rest of the UK. Quality is another key differentiator, with prime Class 1 sites likely to trade at a yield of 100-200 basis points sharper than lower-quality sites.
Mr Smith concluded: “We expect strong investor appetite to persist throughout this year with more than £6 billion chasing opportunities in the sector, and a continued stream of potential new entrants. There is a premium for open storage portfolios, particularly those with reversionary rent and asset management opportunities. That said, investors may undertake some strategic re-evaluation of open storage sites, reassessing those in high-value locations due to favourable rental shifts.”
Andrew Smith FRICS SIOR
Partner
Carter Jonas
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