Take-up of logistics space in the UK will reach record breaking levels by the end of 2020, as e-commerce continues to be the undisputed driving force behind the sector’s growth, according to Cushman & Wakefield.
Take-up volumes for the year are predicted to reach almost 50 million sq ft eclipsing the previous record of 40 million sq ft achieved in 2008 and 2018. Preliminary take-up for Q4 will be in excess of 12.5 million sq ft, 54% above the 10-year average.
E-commerce, led by the likes of Amazon, was the driving force of demand throughout the year as the sector rushed to secure additional space to meet soaring online sales during the COVID-19 pandemic. It accounted for almost 38% of total annual take-up (including parcel delivery and postal operators), an all-time high.
Cushman & Wakefield’s data, which captures deals over 50,000 sq ft, revealed that the take-up figures exclude almost 3.5 million sq ft of short-term lettings, largely to accommodate a surge in inventory levels at the start of the pandemic.
In addition, the average deal size was the highest ever recorded over a calendar year (200,000 sq ft). The largest transaction in Q4 was the 870,000 sq ft pre-let by logistics company Weerts Group at Suffolk Park in Bury St Edmunds, highlighting the continued strength in demand emanating from 3PLs during the pandemic and in preparation for Brexit.
Availability levels fell by 5% during Q4 to 62 million sq ft with some regions facing a growing shortage of quality stock.
Richard Evans, Head of UK Logistics and Industrial at Cushman & Wakefield, said: “After a record-breaking year and dwindling availability in many regions, developers have sensed the opportunity and we are starting to see speculative development picking up again after a pause during the pandemic. We are currently tracking almost 5.3 million sq ft of committed speculative development for 2021, just above the annual long-term average. Looking ahead we expect to see more as the economy recovers and the sector continues to react to Brexit and the structural changes in retail.”
Ed Cornwell, Logistics & Industrial Capital Markets Partner, added: “There continues to be significant investor interest in the sector, and we have seen yield compression across the board during Q4. The robust occupational story is supporting the investment rationale and there remains substantial pools of capital wanting to enter the market. Strong investor appetite coupled with a lack of suitable investment opportunities will continue to drive pricing. In particular, well-let and strategic assets offering scale will continue to attract the most attention and command premium prices.”
Bruno Berretta, Associate Director, UK Industrial & Logistics Research and Insight at Cushman & Wakefield, said: “A last-minute Brexit deal is not yet off the table. Whatever the outcome of negotiations is, the rules of the game will change from January 1st. In the short-term we can expect disruptions to supply chains, which is already visible in some UK ports. Many UK based businesses are choosing to hold more stock to mitigate against such risk and this is boosting demand for storage and distribution space. The longer-term implications of Brexit will also depend on the terms of the new trade regime that will come into force from January.”