Located near urban areas and generally easily accessible to transport links, MLI estates lease between 5 and 50 industrial units of different sizes, providing affordable space for a wide range of business activities.
They are mostly let to a highly diversified range of SMEs on three to five-year leases, with units usually ranging from 500 sq ft to 10,000 sq ft in size.
Gap between supply and demand is driving strong rental growth in MLI, opening the opportunity for superior returns
Demand outweighs supply - a market imbalance that's likely to remain for the foreseeable future, causing strong growth in rents.
A structural shift in demand for MLI units has taken place and primarily driven by eCommerce and a growing number of SME businesses in the UK. These long-term trends have accelerated by the coronavirus pandemic whilst supply remains inelastic due to lack of available land and high construction costs.
The demand/supply imbalance is leading to sustained rental growth of 4-5% per annum in the MLI sector. Despite this, rents remain highly affordable, with most occupiers only spending 2-3% of their annual turnover on rent.
Internet sales as a percentage of total retail sales
Growth in UK SME businesses in the private sector by number of employees
Whilst industrial property has historically out-performed offices and retail, we are current experiencing a structural shift in ongoing and long-term demand for flexible industrial space in densely populated urban areas, for a variety of reasons:
The growing number of SME businesses - Small to medium-sized businesses account for over 99% of businesses in the UK and have increased in number by 69% since 2000. They are ideally suited to MLI units, not only due to their size, but also because they often look to serve a regional customer base, and need access to a pool of local employees.
Conveniently located flexible space for online retail and logistics - eCommerce, accelerated by Covid, is changing the game, as consumers embrace the convenience and cost effectiveness of home delivery. Many small businesses are moving online and replacing or supplementing high street premises with MLI, to sell, manufacture, dispatch or store goods. And MLI units make perfect sense for local logistics distribution hubs and the growing click-and-collect services.
Gentrification works on industrial estates, too - The shift of industrial space from traditional heavy manufacturing towards cleaner and more modern activities makes MLI estates a more customer-friendly environment, accessible for the general public, and attracting a wider range of service and high-tech businesses.
Working practices are changing - Cultural change and advances in manufacturing technology, like 3D printing, are bringing light manufacturing back to the UK - known as 'onshoring'. And the pandemic has highlighted the fragility of complex international supply chains, adding to the desire for local production and distribution.
Trade counters/ wholesaler
37% Retail & Logistics
High tech engineering
Quasi office/ archiving
Wide range of occupiers in the MLI market graph
The gentrification of multi-let graph
Creating new MLI accommodation in densely populated urban areas is difficult, and therefore rare, for several reasons:
New development in attractive locations isn't commercially viable - MLI design hasn't needed to evolve much, so there is no premium attached to rents for new-build accommodation. In most locations, new-build is not viable as rents do not justify the ever increasing building costs. Multi-let estates aren't attractive to speculative developers, who generally need to pre-let to secure funding.
"They're not making land any more" - The availability of land in and around UK towns and cities is severely restricted.
Most appropriate land supply is prioritised for residential use - With Government sponsorship for residential development on brownfield land, and local council planning pressure for a housing land bank, residential use comes first, and generates higher value for the land. This also creates the need for health, leisure, civic and care facilities, so MLI is unlikely to be the preferred option for developers.