Trading update ahead of the Company's full year results, which are expected to be published on 17 March 2020Read more
Tritax Big Box is the only Real Estate Investment Trust dedicated to investing in and funding the pre-let development of very large logistics facilities in the UK.
We invest in and actively manage existing built investments, land suitable for Big Box development and pre-let forward funded developments. We have constructed a portfolio that includes some of the most sought after Big Boxes in the UK.
We aim to provide an attractive, secure and growing income for our Shareholders, together with capital appreciation. Our ambition is to be the pre-eminent owner of Big Boxes in the UK and a leading low-risk, income-focused REIT.
Big Boxes are larger format industrial logistics facilities that often have characteristics not found in the rest of the sector and should be differentiated from smaller older buildings. These properties are modern, strategically located, highly efficient distribution centres and logistics hubs that hold finished goods for distribution to other parts of the supply chain or directly to consumers.
These properties are strategically important to tenants as their scale, location and sophisticated automation provide previously unavailable flexibility, economies of scale and low cost of use.
Perhaps the most distinguishing feature of this asset type is their sheer scale – everything about Big Boxes is vast. Situated on sites of up to 50 acres, Big Boxes typically boast floorplates of between 300k sq ft and 1 million sq ft.
In terms of height, their eaves are usually between 12 and 25 metres. More specifically, low-bay buildings are typically used for food distribution, but general merchandise distribution (non-food) use taller buildings of up to 25 metres which allows for the installation of racking or mezzanine floors to increase the useable space. This additional volume which is highly attractive to tenants as rents are generally only paid on the ground floor area, as opposed to the building’s total volume.
Occupiers are up-scaling, centralising dispersed distribution facilities into fewer, larger Big Box facilities to capitalise from the previously unavailable flexibility, economies of scale and low cost of use that these assets provide.
The location of Big Boxes is critical for efficient market coverage. Traditionally, the ‘Golden Triangle’ in the Midlands has been regarded as a prime logistics location as it offers tenants access to 85% of the UK market in 4.5hrs driving time.
Big Boxes are strategically located in areas with strong transport connections. Access to major roads or motorway junctions is a must, but alternative transportation routes via airports, sea ports or rail are increasingly important for efficient goods inwards stocking and downstream distribution.
Increasingly, of equal importance to occupiers are locations that are close to large employment pools, ensuring their ability source suitably qualified employees in sufficient numbers from an area immediately surrounding a site.
Big Boxes are a relatively new phenomenon. This large-scale format did not exist in the UK before the early 1990s, therefore most high-quality Big Boxes are modern facilities constructed within the past 15 years.
Big Boxes have evolved into technologically advanced buildings. The specification will usually include ground floor loading upwards of 50kN/m², with laser level floated floors and loading doors which are designed to accommodate the latest truck specifications.
Increasingly these facilities will have high power supplies, sometimes dual power supplies or on-site standby generators. High speed internet access is a must for e-commerce. Non-food buildings are getting taller, now up to 25 metres, which provides for the possibility of high level racking and multiple mezzanine floors to double or even triple the floor space available inside the building.
Furthermore, such modern designs ensure the building is energy efficient and include impressive environmental credentials with solar panels, wind turbines and rain water harvesting etc.
These assets have evolved significantly from the simple ‘sheds’ we knew of old; today’s modern Big Boxes are smart and becoming smarter. Such sophisticated, innovative and technologically advanced warehousing can provide distribution solutions that help our tenants reduce costs and maintain their competitive edge.
Occupiers want to automatically stock and retrieve products, use state of the art robotics to efficiently pack complex deliveries, and meet customer demand for quicker deliveries. Big Boxes are the perfect setting for this automation, with the scale necessary to accommodate the high-level racking and mezzanine floors that maximise use of the space.
Technologically, no part of the property market is evolving faster than logistics. Whether it is ground-breaking drone deliveries or the rapid advancement of robotics applications, the technology that is being tried and tested today will shape the future – the positive influence of Big Boxes is still at an early stage of development.
Boxes are sought after by institutional-grade high-calibre tenants including conventional and online retailers, third-party logistics companies (“3PLs”), and other companies such as manufacturers. These organisations are responding to structural changes in their markets, such as the relentless rise of e-commerce, weaker economic growth and increased competition, which means that improving operational efficiency can be a key factor in determining profits.
Big Boxes offer previously unavailable flexibility, economies of scale and low cost of use. They are often the nucleus for distribution at a national level and increasingly at a regional level and can be the most important component of an occupier’s supply chain. Many companies use Big Boxes to centralise previously dispersed distribution into fewer, larger facilities, helping to optimise staff and stock management and expand product ranges. This allows retailers to match store or online offerings in a single warehouse, which is not possible with smaller buildings. 3PLs are also focusing on Big Box assets to centralise multiple contracts, providing flexibility and allowing them to tender more competitively.
Big Boxes are in demand from institutional-grade high-calibre tenants who recognise the strategic and operational importance of these assets to their business. Big Boxes offer previously unavailable flexibility, economies of scale and low cost of use. They are often the nucleus for distribution and can be the most important component of an occupier’s supply chain. This increasing occupational demand however is against a backdrop of very limited supply.
Secondly, to further drive efficiency occupiers often make a significant capital investment in racking, mechanisation and automated systems within Big Boxes, the cost of which often eclipsing the construction cost of the building or value of the investment.
For the above reasons, occupiers are often willing to sign long leases of 20 years or more, with regular upward-only rent reviews, which is rarely seen elsewhere in the UK commercial property market. This is to ensure that they initially secure and then retain use of the asset over the long term, thus benefiting from the increasing efficiency the assets provide, as well as their own substantial investment within the building.
We believe these properties, known as Big Boxes, are one of the most exciting and highest-performing asset classes in the UK real estate market. These properties are strategically important to tenants, as they offer efficiency savings and are essential to fulfilling e-commerce sales.
Strong tenant demand, coupled with limited supply and significant inward investment from tenants, make Big Boxes attractive assets.
Demand for logistics space is strong
Demand for Big Boxes comes from three main sources: conventional and online retailers, third-party logistics companies (3PLs), and other companies such as manufacturers. These occupiers need Big Boxes for three primary reasons:
1. To improve their operational efficiency, by centralising dispersed distribution frameworks into fewer, larger facilities. This allows them to optimise their supply chains, staffing and stock management, and benefit from economies of scale and automation. These efficiencies are crucial to protecting profitability in an increasingly competitive environment.
2. To meet the requirements of a fast-evolving retail market and in particular to fulfil e-commerce sales, which are growing relentlessly. The UK is one of the most advanced e-commerce market in the world. Big Boxes are essential for fulfilling orders, handling returns, coping with surges in demand (for example, around events such as “Black Friday”) and meeting consumer expectations for ever-faster delivery.
3. To meet their sustainability objectives, by occupying assets that are constructed using state of the art design and materials and incorporate initiatives such as low carbon technologies that not only minimise their environmental footprint, but ensure that natural resources are consumed as efficiently as possible.
The supply of Big Boxes is constrained
Land which can accommodate Big Boxes is scarce in key locations. The scale of Big Boxes and the traffic movements they generate can present planning challenges and it can take years to achieve the required consents. Big Boxes also require a large local labour pool, as they can employ more than 3,500 people during peak periods. They also have substantial power and infrastructure requirements, adding further complexity to site identification and delivery.
These factors mean that Big Box supply remains thin. Occupiers looking for a suitable building may therefore need to pre-let an asset either prior to or in the course of development, creating opportunities for investors to forward fund these developments and obtain brand new assets on long leases to high-quality tenants.
Market dynamics are favourable for landlords
Market dynamics are favourable for landlords The supply and demand imbalance described adjacent is highly favourable for asset owners. The scarcity of available units, coupled with the substantial investment occupiers make in automation and fitting out, mean that they are willing to sign long leases with upward-only rent reviews. High demand and constrained supply have resulted in attractive rental growth in recent years, with rising labour and construction costs now also feeding into rents. This provides secure and growing income for us.
Big Boxes also tend to be resilient. In the event of a vacancy, high-quality and well located real estate is likely to let quicker, to a higher-calibre occupier, at a higher rent, and with lower incentives