Warehouse space in the UK has seen a lot of occupants, with take up in units larger than 50,000ft2 hitting a record total of 30.8 million ft2 in the first half of 2021, double than what the first half of 2020 saw, according to data from Knight Frank.
Retailers and distribution companies accounted for the vast majority (76%) of take up for the first half of 2021, likely as a result of the boom in e-commerce. Online sales accounted for 28% of all the retail expenditure in 2020, up by 8% from 2020’s 19% share, which saw further growth to 32% in the first half of 2021.
While lockdown measures ease up as people are inoculated and countries recover, it’s generally agreed upon that online shopping will continue to enjoy increased patronage as a result of the lockdowns, and this, in turn, will require changes in retail supply chains.
UK only has about 43mn ft2 of high-quality space available as of July 2021, which is estimated to account for only 8 months of supply based on the market’s current take up rate, though most of this available space isn’t available or aren’t desired by occupiers due to location or specifications. The big box market, in particular, has been hit hard by the lack of space, with limited options for those looking for spaces bigger than 350,000ft2.
Knight Frank Partner and Head of Industrial & Logistics Charles Binks bluntly stated that a lot of occupiers in the UK are having trouble finding units that meet their needs, and often have to accept less-than-ideal choices in terms of specification or location. The companies that don’t want to compromise, meanwhile, are forced to put their plans for expansion and/or relocation on hold as they wait for additional warehouse space to be developed.
As a result of the changes in the eCommerce space, online retail expenditure forecasts have been changed throughout the 18 months leading up to July 2021, and operators have put forward their growth strategies, which are on the optimistic side of things. However, the issue of lacking space and developmental constraints means that operators might not be able to acquire the space they want as 2021 goes along, which, in turn, can put their plans on hold.
The UK industrial and logistics market saw a record investment of £6bn in the first half of 2021, which is more than double the amount (£2.7bn) the first half of 2020 saw, which also a whopping 54% bigger than the previous record, set in the first half of 2018.
Overseas investors account for more than half of the expenditures for the first half of 2021, which is an increase from the 44% share in 2020 and the 38% share in 2019.
Increased activity from these overseas investors, alongside the UK Institutional investors looking to diversify and get a slice of the logistics pie led to the average lot size transacted in the first half of 2021 sitting at £20.2mn, compared to 2020’s average of £17.9mn.
Overall, the UK’s industrial and logistics market saw yields compress by 25-100 bps over the 12 months leading up to July 2021.
UK Capital Markets Partner at Knight Frank Johnny Hawkins says that, in spite of the logistics industry’s yield compression, core assets in the industry possess income and risk profiles that are hard to match in other subsectors of real estate, which is part of the appeal to big operators like Amazon marketplace and the like.
Hawkins adds that the limited supply of high-quality assets, the sudden upsurge in demand, and the unmatched level of penetration in the eCommerce market have led to the perfect storm for industrial and logistics assets, explaining the boom in investment.