Latest insights from Colliers International’s rents map

Len Rosso, Head of Industrial & Logistics for Colliers International.

Len Rosso, Head of Industrial and Logistics at Colliers International commented: “There is no denying that COVID-19 has accelerated consumer preferences for e-tailing, both from a convenience and safety perspective. Latest data reveals that monthly online sales have remained elevated and accounted for 28.1% of total retail sale as companies and consumers continue to adapt to this challenging social and economic environment. As a result, the pandemic has emphasised the importance of logistics as the backbone of our economy and occupiers will have to further embrace consumers changing preferences.

“Prime rents, compiled in Colliers International’s Industrial and Logistics team’s Rents Map, show some increases in rents over the 12-month period to the end of July, notably due to the additional demand in e-commerce, resulting in retailers needing to find additional space to store their products for online deliveries.

“While other property sectors have experienced rental declines, logistics units larger than 100,000 sq ft saw prime rents in England increasing year-on-year by 1% on average from £7.52 per sq ft (psf) to £7.59 psf in July 2020, with the North West showing a 3.1% increase (from £6.06 psf to £6.25 psf), followed by the South East at 1.9% (from £8.27 psf to £8.43 psf) and the South West at 0.8% (from £6.40 psf to £6.45 psf).

“The biggest increases were recorded for smaller units of more than 10,000 sq ft as these typically are located in densely populated and built up areas. Prime rents on average increased by 2.3% (from £10.16 psf to £10.39 psf in July 2020), led by the North West (3.8%), South East at 2.6% (£10.14 psf to £10.40 psf in July 2020) and Greater London at 2.1%.

“The UK is now officially in a recession but so far the industrial and logistics sector has surprised on the upside and remained very resilient. According to Colliers International’s Rents Map data, during the last recession, prime rents for distribution warehouses greater than 100,000 sq ft decreased by 11%, from December 2007 and December 2009. However, at the moment there are no signs of deflationary pressures on rents building up, and we do not expect rents to decrease over the short term, unless the economy is unable to return to its pre-pandemic peak by the end of 2021.

“In light of the economic contraction and the pandemic, some tenants across all commercial property sectors have been struggling to pay their rents but industrial tenants have fared better than their peers as the structural changes in consumer behaviours and the increased demand for e-commerce continues to create demand, particularly for logistics units. Yet despite this demand for space, finding the right warehouse stock in the right location is one of the biggest challenges for occupiers, particularly nowadays as season peaks are becoming more unpredictable. This supply and demand issue, coupled with spiralling delivery costs and sustainability pressures will undoubtedly have a domino effect, increasing the cost of items for the end-user: the customer.

Customers still do not have the same levels of confidence in visiting physical stores, and with people working from home they are less likely to venture out shopping in person, which is putting further pressures on last mile deliveries. While we expect some customers to gravitate back to their old habits and start visiting high street stores again once we are back to some sort of normality, we anticipate this step change in consumer behaviour will still keep the online share of total retail sales at somewhere around 25 – 28 per cent in the near-term.

“Two months on from the June quarter date, Colliers has collected 92% of rent for industrial properties, 82% for offices and 56% for retail properties.

Similar to the March quarter, the industrial and logistics sector continues to be the highest performing in terms of rent collection. This figure increases to 96% for units larger than 100,000 sq ft two months post the June quarter date. It is clear to see why investor appetite for distribution and logistics continues to rise considerably, with many new entrants announcing they will be moving into the sector.“