Rents across the UK’s distribution warehouse stock rose by one per cent in March 2023, the highest month-on-month average rise since August 2022 – double the average monthly growth of 0.5 per cent for the seven-month period.
The latest MSCI data, analysed by Colliers, reveals that despite slowing occupational activity, rental growth accelerated due to the good quality newly built ESG-complaint warehouses that continue to be provided onto the market, which is matched by a resilient occupier demand. Supply of units sized 100,000+ sq ft has increased during the last three months, through the completion of 2.6m sq ft of available speculative space, as well as tenant space being returned to the market. Overall warehouse supply across the UK has risen by 32 per cent on the Q4 2022 figures to 27.5m sq ft, in line with the five-year average (2018-2022) – a marked increase from the low of just under 17.5m sq ft which was available in Q2 2022.
Len Rosso, Head of Industrial & Logistics at Colliers, said: “The industrial market is bouncing back from a record low level of supply, due to the feverish activity of occupiers in 2020 and 2021. Investors are providing new premium quality stock, meeting the latest sustainability and BREEAM standards, which comes with a premium price – that is why rents are continuing to rise.”
Industrial take up activity during Q1 2023 slowed to the lowest figure since Q4 2017, with just 5.2m sq ft on space signed – only two deals larger than 400,000 sq ft were agreed over the last three months. Once again, the majority of the warehouses leased were new build space: 27 per cent was purpose-built for occupiers, and 38 per cent was speculatively developed supply.
Rosso added: “As consumers continue to navigate the cost of living crisis, and development costs remain high, occupiers are naturally going to be more constrained in committing to large purpose built projects, which typically dominate the market take-up. For the medium term at least, occupiers’ choice is going to be new speculative developments built by investors, as well as good quality second-hand units.”
Andrea Ferranti, Head of Industrial & Logistics Research at Colliers added: “Warehouse construction starts are slowing due to the fall in land values, outward yield shift and elevated build costs. However this year we are set to see a record level of new speculative space completed – we are currently tracking just over 15m sq ft of available space under construction.
“Looking ahead into 2024, with the currently suppressed attitude to speculative funding, there will be a significantly lower level of new space coming online which will stabilise future supply levels, while also sustaining this continuing rental growth.”