Industrial & logistics take-up returns to normality, but remains 12% above pre-covid average

According to Savills latest Big Shed Briefing, UK take-up of industrial & logistics space (units of 100,000 sq ft +) reached 29.1 million sq ft in 2023, a decline of 40% when compared with 2022. However, despite this drop it remains 12% above the pre-Covid average, signifying a return to normality, with the high levels of activity seen during the pandemic unsustainable in the long term.

Savills figures show that supply has risen 90% in the last twelve months now standing at 49.57 million sq ft, reflecting a vacancy rate of 7.15%. This increase can be attributed to a notable rise in the level of occupier controlled space on the market, along with 18 million sq ft of speculative completions in 2023. As a result, Grade A supply has increased to 58% of the total, the highest level ever seen.

Whilst no region has remained immune from rising supply, there are still many markets that have less than one year of available stock, this includes the East Midlands, the West Midlands, Yorkshire & the Humber and the North East.

What’s more, Savills notes that speculative announcements have fallen by 34% when compared to 2022, meaning that the total development pipeline for the UK now stands at just 12.63 million sq ft due for delivery in 2024 and the early part of 2025.

Whilst deal count remains 19% above the pre-Covid average, a key contributing factor to falling levels of take-up has been the more muted levels of demand for larger buildings. This has seen take-up for units over 500,000 sq ft falling 61% to 7.32 million sq ft in 2023. The level of build-to-suit (BTS) deals also fell to the lowest level since 2015 as volatility in capital markets made it significantly harder to agree terms on such transactions.

Kevin Mofid, head of industrial & logistics research at Savills, comments: “Although take-up in 2023 fell by 40% when compared to 2022’s figure, it is positive to see that it remained 12% above the pre-Covid average. The market has undoubtedly been impacted by macro-economic events, which has seen occupiers take a more cautious approach when it comes to acquiring space. This has seen vacancy creep up to 7.15%, however, with speculative announcements also falling and take-up for existing units remaining strong we anticipate vacancy will start to decline as the year progresses allowing for continued rental growth as pocked of under-supply remain across various key UK markets.”

From an occupier perspective, Savills has continued to see diversification of the occupier mix with manufacturing related deals accounting for 29% of the market, the highest level seen since 2017. This suggests businesses are seriously considering near-shoring as they firm up their supply chains in the face of increasing economic uncertainty. Followed by 3PL’s at 26% and online retailers at 12%.

Richard Sullivan, national head of industrial & logistics at Savills, adds: “There is no doubt that 2023 was a challenging year for real estate in general. The highest interest rates for over 15 years, along with stubbornly high inflation saw investment and occupier activity cool in the UK logistics market. What’s clear is that occupiers are no longer in growth mode and are now more driven by strategic decision making governed by upcoming lease events and a desire to improve their ESG credentials. This has meant that whilst there are a sizeable number of requirements in the market, decision making is more protracted. Looking ahead, there are early indications that the consumer economy remains in reasonable health, which along with strong online retail figures, suggests we could see businesses become more acquisitive as the economic picture improves.”