According to Savills latest Big Shed Briefing, UK take-up of industrial & logistics space (units of 100,000 sq ft +) has once again hit record levels in H1 2021, reaching 24.5 million sq ft (2.27 million sq m), 83% above the long term average. As a result supply has reached critical lows, falling at the fastest pace ever.
Savills figures show that supply now stands at just 24.3 million sq ft (2.25 million sq m), a fall of over 7.5 million sq ft (696,772 sq m) in 2021 alone, reflecting a nationwide vacancy of just 4.24%, the lowest ever recorded. Given these market dynamics, there is a strong case to suggest that actual rental growth will outperform the current forecast of 2.7% per year to 2025.
In response there have been a number of speculative announcements, with Savills now tracking 16.79 million sq ft (1.55 million sq m) of space under construction. This is compared to a development pipeline of just 6.25 million sq ft (580,644 sq m) in H1 2020. Despite being positive news for the sector, a well-documented shortage of construction materials is likely to push back completion dates which will place further constrains on supply in the short-term.
Kevin Mofid, head of industrial & logistics research at Savills, comments: “At present the record levels of take-up we have seen in recent years show no signs of slowing, with demand continuing to outpace supply quite significantly. Even if the entire development pipeline were to remain unlet upon completion, vacancy rates would only rise to just over 7%, well below the 12% figure that would hamper rental growth. However, with a considerable amount of stock already under offer, we aren’t likely to see vacancy rates increase, especially not in the short-term given the macro-economic factors currently impacting construction starts.”
Unsurprisingly, online retail remains the dominant sector accounting for 38% of all take-up in H1 2021, which is followed by third party logistics operators (3PLs) at 25%. The biggest jump, however, was by manufacturers at 15% compared to 8% in the first half of 2020. This points towards a positive economic recovery following the pandemic.
Richard Sullivan, national head of industrial & logistics at Savills, adds: “The industrial & logistics sector remains incredibly resilient, even in the face of ongoing uncertainty. The Covid-19 pandemic has undoubtedly accelerated the structural shift towards online retail, whilst Brexit has highlighted the need for greater supply chain resilience here in the UK. Together this has created the perfect storm, leading to unprecedented demand for good quality units. However with levels of supply now critical, despite a healthy development pipeline, we must consider how best to advise occupiers when it comes to their future space requirements.”