New uses power up demand for open storage

Demand for open storage land has risen year-on-year amid a diversifying occupier base, according to a new report from Carter Jonas. Some sectors have waned, such as dark kitchen requirements, according to the agent’s Open Storage Update Spring 2024 report. However, a “sharp rise” in enquiries for electric vehicle charging facilities was noted, on top of demand for HGV and van parking and storage. Carter Jonas also pinpointed the battery storage sector as an emerging source of demand. Enquiries for open storage sites rose by 29% to 537 in 2023 compared with the previous year, and were up nearly fourfold on 2020 levels. By size, the figure equalled 2,277 acres. Researchers at Carter Jonas said this stands in sharp contrast to three years ago, when open storage assets were almost entirely absent from investment portfolios.   Rents for Class 1 sites – its classification for prime locations – grew during the past year, although the pace of growth slowed.  Rental increases were led by London and the inner South East, up 3.3% over the six months to spring 2024, and by 9.5% over the past year.  Growth across the regions was more restrained, averaging 0.7% over the past six months and 2.1% over the past year.  There was a clear pricing differential by location, with London and the inner South East trading at yields around 150bp lower than the rest of the UK. Quality was found to be another key differentiator, with prime Class 1 sites likely to trade at yields that are 100-200bp sharper than lower-quality locations.   Looking ahead, occupier demand for open storage sites is expected to remain strong throughout 2024 despite the subdued wider economic outlook, buoyed by its broad tenant base and concentration in expanding sectors of the economy.  Requirements for EV charging sites are expected to stay particularly strong, together with the establishment of the battery storage sector as a major use. Occupier demand is predicted to focus on high-quality Class 1 and Class 2 sites, driven by electric fleet and logistics operators. Class 2 tarmac surface sites may become more dominant in the market, owing to their suitability for EV charging in particular and lower rents compared with Class 1 sites. Southampton, Portsmouth and Leeds were identified as emerging regional rental growth leaders. Carter Jonas said more than £6bn of capital is chasing opportunities in the sector, including a “stream of potential new entrants”. It also noted that there is a premium for open storage portfolios. Interim open storage use was pinpointed as an increasing consideration for developers, with some developments on hold owing to market conditions. Carter Jonas said this trend may lead to an increase in the stock available for a period of up to three years. However, sites offering longer leases will continue to attract a rental premium. Andy Smith, partner and open storage lead at Carter Jonas, said: “We expect strong investor appetite to persist throughout this year, with more than £6bn 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.” Photo © EG