Demand for UK logistics and distribution space reached record levels in Q3 2020 as retailers and 3PLs expanded their supply chains in response to the ongoing pandemic, according to Cushman & Wakefield.
The firm’s research revealed the third quarter of the year was the busiest on record with 16 million sq ft of space transacted, nearly double the ten-year average for Q3 of 8 million sq ft.
The figures indicate a further acceleration in demand for logistics and distribution space to keep pace with the boom in e-commerce. In total, e-commerce has accounted for 40% of take-up so far this year – an all-time high – with related sectors including meal kit operators, parcel delivery and fulfillment companies also expanding.
Reflecting the ongoing pandemic response, several short-term requirements have developed into long-term commitments during the quarter, including Supply Chain Co-Ordination (NHS/Clipper Logistics) leasing 536,991 sq ft at DIRFT in Northampton on a 5-year term for PPE storage.
The data also shows that take-up for the first nine months of the year reached 35.5 million (excluding 3.7m sq ft of short-term deals) with a further 11.5 million sq ft currently under offer. It means that take-up has already outstripped the full-year take-up for 2019 of 33.2 million sq ft with 2020 on course to set a record for take-up.
Amazon continued to expand its big box and last-mile network during the quarter, taking 2.3 million sq ft at Panattoni Park in Swindon which was the largest deal in Q3. The online retailer accounts for one third of all take-up this year so far, acquiring 11.5 million sq ft in total.
Record take-up levels, combined with a slowdown in speculative development, meant there was a 11% drop in supply during the quarter with total availability falling to 66 million sq ft. Supply is now below its historical average across all regions bar the Midlands and the South East, with the North West recording the sharpest year-on-year decline in availability (-39%).
In South Wales, take-up of all sizes reached 504,000 sq ft in the third quarter of the year.
Chris Yates, Associate in Cushman & Wakefield’s National Logistics & Industrial team, commented: “Take-up across all size brackets in South Wales totalled 504,000 sq ft in Q3 2020, which was down on Q2 figures, although this figure was skewed to a large degree by the sale of the Orb Works in Newport which represented over half of Q2 take-up. Q3 take-up actually demonstrated a 150,000 sq ft increase on Q1 figures as South Wales industrial continued its robust performance in light of the pandemic and economic headwinds.
“Whilst South Wales as a region hasn’t witnessed the same magnitude of take-up by volume that other UK geographies have in what is a record year for industrial as an asset class, there were still a total of 70 deals transacted over the past three months, continuing to highlight the strong regional demand for industrial, certainly at the sub 10,000 sq ft bracket where there are now a number of new build schemes helping to boost supply. At the larger end of the scale, St Modwen is on site with construction of their next speculative phase at St Modwen Park, Newport, comprising a 30,000 sq ft and 100,000 sq ft warehouse, providing much needed Grade A stock for the region to help keep pace with underlying demand.”
Bruno Berretta, Associate Director, UK Industrial & Logistics Research and Insight at Cushman & Wakefield, said: “Whilst the pandemic has taken centre stage over the last few months, investors and occupiers are now starting to turn their attention towards Brexit. Although the outcome of ongoing negotiations is uncertain, and some sectors such as manufacturing are arguably more vulnerable to a ‘hard’ Brexit than others, the market is about to enter some potentially disruptive months in good shape. Demand has proved resilient and supply is in line with its long-term average and 30% below its post-GFC peak.”
From an investment perspective, volumes recovered some of the lost ground during Q3, rising 77% quarter-on-quarter to £1.65 billion, on a par with Q3 2019. As a result, at £4.0bn, transactions year-to-date are now only 8% below 2019 levels. However, the research also revealed that the number of deals is down sharply by 45%, suggesting that larger deals have retained their market appeal as certain investors continue to scale up. Overseas investors account for almost 50% of total investment so far this year.