Industrial & logistics take-up reverts back to pre-covid levels 

According to Savills latest Big Shed Briefing, UK take-up of industrial & logistics space (units of 100,000 sq ft+) reached 12.5 million sq ft in H1 2023, the lowest level recorded since 2013. This, however, is just 1% shy of the pre-Covid H1 average (Q1 2007 to Q1 2020), signifying the return to levels seen prior to the pandemic.

Savills notes that with an increased level of occupier controlled stock on the market and 9 million sq ft of speculative completions in Q2 2023 alone, the firm has seen supply rise to 41.9 million sq ft, an increase of 120% on Q2 2022. This reflects a vacancy rate of 6.25%, which, again, is in line with the pre-Covid average of 6.3%.

There is now 21.8 million sq ft of Grade A space on the market, which at 52% of total supply, is the highest level since 2020. However, Savills expects this to trend downwards as current supply is leased-up and the development pipeline is not replenished as quickly. In fact, there have been just 22 speculative development announcements this year, compared to 39 over the same period in 2022.

A key factor driving lower take-up is the lack of transactions over 400,000 sq ft, with just six completing so far this year. It is also attributable to the fall of build-to-suit (BTS) deals which has reduced from 16.2 million sq ft in H1 2022 to 5.2 million sq ft in H1 2023.

Nevertheless, Savills expects take-up to rise in the second half of the year. The latest data from the firm’s occupational requirements index shows that enquiry levels have risen 64% in H1, driven largely by a significant rise in demand for units over 500,000 sq ft.

The diversity of the occupier mix continues to point to a well-balanced market, less dominated by one particular segment as witnessed with online retail over the past five years. Indeed, Savills figures show that online retail accounted for just 6% of space taken so far in 2023, whilst a resurgence of manufacturing related demand remains, accounting for 28% of take-up, up from just 13% in 2021.

Richard Sullivan, national head of industrial & logistics at Savills, comments: “As we reach the half way point of 2023, economic data in the UK remains volatile and unpredictable. As a result of inflation, higher costs of capital will impact the market in many ways, with developers finding it hard to fund speculative development. In turn this will constrain pipeline moving forward. However, despite uncertainty unemployment remains historically low and consumer confidence, in relation to people’s individual circumstances, remains surprisingly high. This means that occupiers still need to consider the suitability of their supply chains for a market that will continue to grow, notwithstanding the challenges in the short term.”