Lockdown e-commerce acceleration powers logistics take-up to record levels

Richard Evans, Head of UK Logistics and Industrial at Cushman & Wakefield

The continued and significant rise of e-commerce, which was further accelerated during lockdown, has underpinned a record second quarter for the logistics and industrial sector in the UK, with overall take-up for the year expected to surpass the 10-year average of 33 million sq ft, according to new research from Cushman & Wakefield.

New data shows that after activity ground to a near-halt in early April, market sentiment returned quickly as the importance of the logistics sector to the UK’s economy during the peak of the pandemic became evident, and the cultural shift towards online retailing was boosted by the lockdown.

Three major deals by Amazon brought second quarter take-up volumes to 13.3 million sq ft, the strongest on record. If a further 3.6 million sq ft of short-term deals (mostly generated by food retailers and the public sector) are accounted for, the first half take-up was also the strongest ever recorded at 22.6 million sq ft.

A sharp increase in the average deal size made up for the lower number of total transactions during the second quarter (46 compared to 59 on average). Boosted by the Amazon deals, e-commerce accounted for

64% and 48% of take-up during the second quarter and the first half respectively, both of which were record highs.

Looking ahead, with 16 million sq ft of long-term deals under offer at the end of the second quarter, take-up is likely to surpass the 10-year average of 33 million sq ft this year. A significant amount of space under offer is to ecommerce occupiers, in what could be a record year for the sector in terms of net absorption.

Richard Evans, Head of UK Logistics and Industrial at Cushman & Wakefield, said: “The latest data supports the theory that the logistics sector has emerged from the crisis of the pandemic in positive shape. Online sales have grown exponentially, the data driven economy will boost demand from the data centre sector and moving forwards occupiers across many sub-sectors will look to increase inventory levels because of their experiences during the pandemic.

“However, given the challenges of lockdown and the wider economic climate developers have been quick to adjust their speculative programmes, with most schemes being reviewed, and some delayed. This should help prevent oversupply despite the inevitable business failures we expect to see over the course of the year.”

With fewer development starts, availability stabilised at 73.5 million sq ft, around 25% below its post-GFC peak. As result, prime headline rents have held up relatively well so far. Cushman & Wakefield prime Big Box rent index edged up by 0.3% during the quarter and by 1.4% y-o-y.

Bruno Berretta, Associate Director, UK Industrial & Logistics Research and Insight at Cushman & Wakefield, said: “While in some cases landlords have offered to compromise on headline rents to secure long term leases, more commonly we have seen increased incentives being used to secure deals. Three extra rent-free months for a five-year term appear to be commonplace.”

From an investor perspective, both the number of deals and volumes has nearly halved since lockdown, relative to the second quarter of 2019, with £780 million transacted across 36 deals. Overseas capital and domestics REITs were the most active investors over this period accounting for over 60% of volumes in the first half, compared to 31% in the same period in 2019.

After successfully raising new equity capital, UK REITs were also active on the buy-side. In April, Urban

Logistics REITs acquired the Paloma and Crown Portfolios from Paloma Capital and Legal & General for

£31.9 million and £47.2 million. Backed by its largest equity raise on record (£650 million), SEGRO purchased the 34 acres Perivale Industrial Estate (593,096 sqft) in West London from Federated Hermes for £202.5 million.

Ed Cornwell, Logistics & Industrial Capital Markets Partner, added: “We are tracking some £680 million of assets either going through the bidding process / under offer and therefore likely to complete in Q3. In addition, we have visibility on a further pipeline of over £1.5 billion. As a result, we are expecting total transaction volumes to be closer to the £5 billion mark by the end of the year which is a significant level given the period of upheaval and uncertainty endured by the economy as a whole.”