UK Logistics Market - Knight Frank

1 UK Logistics will continue to drive demand for distribution and Logistics space with businesses bringing forward their B2C growth plansDISCLAIMERAny information, datasets and/or visualisations contained within this report should be treated as general information only and is not to be relied upon in any way. Although high standards will be used in the preparation of the information, analysis, views and projections presented as part of this report, no responsibility or liability whatsoever can be accepted by Knight Frank LLP for any loss or damage resultant from any use of, reliance on or reference to the contents of this project. As general information, material produced as part of this project will not necessarily represent the view of Knight Frank LLP inrelation to particular properties or projects.

2 Reproduction of this project s output in whole or in part will not be allowed without prior written approval of Knight Frank LLP to the form and content within which it appears. Knight Frank LLP is a limited liability partnership registered in England with registered number OC305934. Our registered office is 55 Baker Street, London, W1U 8AN, where you may look at a list of members appetite for the sector is expected to continue, keeping pressure on yieldsIncreasing development activity low levels of availability and strong occupier demand will encourage both build-to-suit and speculative developmentCompetition for assets will drive rental growth, particularly in urban areas and for well-located units offering good levels of specificationEcommercePost-BrexitDevelop ment ActivityRental GrowthInvestor AppetiteRetailers.

3 Distribution firms and manufacturers will be modifying supply chains and optimising cross-border distribution as they adapt to new regulations post -BrexitGrowthofthee-commercemarketwa samajordriverofdemandforwarehousingspace in2020andthisisexpectedtocontinuethrough 2021, (comparedto34msqftin2019);drivenmainlyby retailersanddistributioncompanies,whotog etheraccountedfor87%oftakeup(units100,00 0sqft+).In2020, , , , ( ).Whilepure-playonlineretailerswillrequi readditionalspacetoservicerisingonlinede mand,omni-channelretailersmayswitchexist ingspacecurrentlysupplyingtheirstorenetw ork, ,particularlyforwell-locatedassets, : Knight Frank , ONSS ource: Knight Frank , PMA0510152025303540 0 500 1,000 1,500 2,000 2,500 3,000 3,500 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 Jan-20 Jul-20 Jan-21%MillionsUK Internet Retail Sales (monthly)Internet sales volume (lhs)Internet sales % total retail (rhs)44%9%43%4%Take up by occupier type 2020 (units over 100,000 sq.)

4 Ft.)DistributionManufacturingRetailingOt herRetailersandmanufacturingfirmsnowhave clarityontheregulationsandrequirementsfo rtrading, ,wewillseethemadjustingtheirsupplychains anddistributionnetworkstominimisetheimpa ctonsales, (theTradeandCooperationAgreement,orTCA)m eansthattariffshave,forthemostpart, ,newregulationsmeanadditionalpaperwork, ,justintimeinventorymanagement,time-sens itiveproductsandsignificantindustryregul ations(suchasautomotive,aerospaceandchem icals), origin of goods regulations will mean UK industries may need to reshoreor nearshore some of their supply chains. UK manufacturers will have to reduce their dependence on components manufactured outside of the re-exporting goods will look to customs warehouses to reduce the impact of duty liabilities on their cash flow.

5 This will mean increased demand for Logistics and warehousing located close to port recruitment will become more challenging. Logistics operators will increasingly look to gain efficiencies through automation and mechanisation where rulesoforigin , (withtheexceptionofduty-freeimports) (orbondedwarehouses),areonewaythatretail ersor3 PLscanfacilitatethestorage,consolidation andprocessingofgoodsimportedfromoutsideo ftheEU,withoutpaymentofimportdutyorVAT, , , , ,25%ofstaffworkinginwarehousesintheUKare (non-UK)EUnationals(2018).Warehouseandlo gisticsoperatorsmayneedtolookatwaysofatt ractingtalentpost- brexit , ,withhighqualityfacilitiesthatofferbette rstafffacilitiesandamenities,andfeatures suchasairfiltration,naturallight, ,thesectorfacedchallengesinattractingand retainingstaffandwiththelabourpoolsettos hrinkfurther, , ,thereisaround46msqftofwarehousingspacea vailable(inunitsover50,000sqft).

6 Withtake-upof52millionsqftin2020, , ,thelevelofavailability,particularlyofhi ghqualityspace, , ,therewasanuptickinthefourthquarter,with planningconsentsonaparwiththefourthquart erof2019, , , , , , , , ,duetorestrictedaccessroutesandpoorlysui tedstructures, , : Knight Frank , GleniganPLANNINGDEREGULATIONT henewClassEwasintroducedintotheUseClasse sOrderin2020, , ,meaningthatshops,restaurants,officesand industrialbuildings,forexample, ,despitetheincreasedflexibility,itisnotc learexactlyhowsuchconversionscouldplayou t, (f)Million sq. completions (units over 50,000 sq. ft.)CompleteScheduled CompletionsRentalgrowthisexpectedtoaccel erateoverthenextfewyears, , , , , , , ,withsimplifiedplanningprocess, ,withprimerentsforlarge,50,000sqftplusun itsat ,andprimerentsforsmaller(under20,000sqft )unitsnowreaching , (2020).

7 , : Knight Frank , MSCI, RealForSource: Knight Frank , WestEast MidlandsScotlandWest MidlandsNorth EastWalesYorks & HumberNorth WestSouth EastEasternLondon%Average annual rental growth by region (2021-2025)-6-4-202462001200320052007200 920112013201520172019202120232025%UK Industrial Average annual rental ,from16%attheendof2012,to33%attheendof20 20(Source:MSCI/AREF). ,deployinglargeamountsofcapitalintotheir sectorofchoice, , , , : Knight Frank , Macrobond, , (2021-2025).Inthesecondhalfof2020, (forprimeassetsoffering20-yearincome).De mandforhigh-quality,well-locatedwarehous ingaswellasagrowingneedforbuild-to-suitp roperty, ,upfrom ,from16%attheendof2012,to33%attheendof20 20(Source:MSCI/AREF).

8 Developerpartnershipshasmeantthatstockth atwouldhavebeentradedonbydevelopers, , ,withcompanieslookingtounlockcapital, CommoditiesFTSE 100UK GiltsRetailResidentialOfficeHotelIndustr ialAnnualized total returns by asset class (to Dec 2020)5 yr3 yr1 yr