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3rd March 2021

What is driving the need for speculative development?

“Everywhere you look in the economy and in our lives there is an insatiable desire for instant satisfaction, be it in the delivery of groceries to your door, packages from online shopping, or the success of your football team. Patience seems to be a thing of the past. The same culture applies to the boardrooms of the companies who have fuelled the record take up we saw in the logistics market last year. Logistics and Operations Directors reporting into those boardrooms are not going to be popular if they advise that it will take over two years for a new logistics facility to be up and running and contributing to bottom line profits, which is the likely timescale if a build-to-suit solution is chosen.

 

“Whilst it may only take 8/9 months to construct a new building, once you have factored in the upfront work before construction can actually start, including detailed design, planning periods, tendering of construction, contractor lead in periods and then add to that tenant fit out periods plus working the facility up to full operational status, two years suddenly seems a very short timeframe.

 

“So, if the required building is not too bespoke in nature, taking a building that has been built speculatively and that ticks lots – if not all – boxes, is going to be the preferred route. Failure to appreciate this in the society we are now living could be boardroom suicide.

 

“The effect of the ‘here and’ now culture is unsurprisingly reflected in last years take up figures as collated by Savills which showed speculative buildings typically being let within one month of practical completion and also the average size of speculative buildings increasing to close to 300,000 sq ft, which in years gone by was strictly the domain of the built to suit solution.”

 

How has the pandemic affected the speculative development market?

 

“Whilst the pandemic did give rise to some short term requirements around PPE and the like, the far more fundamental and long term consequence is the ‘turbo boosting’ of on line sales which saw many retail businesses seeing five years growth in five months. This has led to the greater demand we saw last year and which we are continuing to see this year. Rental growth is typically driven by competing occupiers for a speculative building rather than the rental levels agreed on a built to suit solution which can be 18 months out of date once it is completed.

 

“So, taking all the above on board the logical conclusion is that we will be looking to develop more space speculatively and the average size of those units will increase to match demand. Whilst there will be speculative building this year, the likelihood is that there will be a greater supply into the market in the early part of 2022 given the typical time lag associated with securing planning consents and the construction process. At Tritax we use the mantra ‘that logistics is the glue that binds the economy together’ and given the demand for space it is vital for the post Covid recovery of the economy that the supply of speculative buildings is provided as soon as possible.”

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