We’ve seen significant change in the UK logistics market over the past couple of years, with increased demand for logistics space resulting in huge growth for the sector. Mike Trainer explains why 2021 was so successful and what the outlook for 2022 and beyond is.
Where did the big shed market start in 2021?
The market continued from where it left off in 2020 – the pandemic resulted in a seismic move online and resulted in five year business plans being delivered across the sector in six to nine months. This, along with Brexit, resulted in massive demand in logistic space and commensurate increase in rents and compression of yields.
How did it all end with yet another record take up?
Cheap £, limited stock due to take up and weight of money and massive increase in online business resulted in a record market. Brexit and global shortages and outages in worldwide supply chain also resulted in more onshoring of stock, which again increased requirement for logistic space.
What factors drove the market and will they still be relevant moving into 2022?
The same markets as above will continue to drive the market. There was however a surge in spec builds in 2021 that will start to come to market in the back end of 2022. This will go some way (but not all the way) to address demand. The new facilities might have slowed rental growth but this may be countered by an increase in construction costs and inflation. I suspect rents will continue to rise.
Where do we stand now in terms of supply and demand?
Demand for prime markets is clearly outstripping supply and driving people into sub-prime. This is set to continue, particularly in South East last mile logistics as well as North West and Midland markets.
Once everything goes back to ’normal’, will the market take a hit?
No, the move online will not stop. Once people go online and find the cost and convenience benefits, which they did during the pandemic, they will not go back to their previous habits. High street retail will inevitably evolve but online demand will continue and grow for the foreseeable future, particularly as traditional brick and mortar retailers increase their online presence.
Where are rent levels and lease terms?
Rent is still growing in relation to prime and whilst demand is higher than supply, length terms will surely go out. In turn, occupiers are becoming more aware of the values they generate and they are looking to structure deals to ensure they are also benefiting from the value that the weight of money and their covenants are creating.
If you have any questions about this, or about logistics in general, please contact Mike Trainer.