UK Logistics sector continues to flourish as rents rise in secondary prime locations and demand for smaller units grows
Rents are rapidly increasing in secondary prime locations and smaller logistics units continue to dominate take-up, according to the latest research from global real estate advisor, CBRE.
According to CBRE’s report, there have been increases in prime rents across all regions over the last five years, however the largest increases have been in secondary prime locations. This has been driven by lack of available stock and increased competition, pushing occupiers to these locations.
CBRE’s new research shows that the Inner South East region has seen significant increases with M25 West, M25 East, M25 North and M25 South achieving rental growth of 25%, 35%, 36% and 83% respectively over a five-year period to Q2 2021. The M25 West achieved a record breaking £17.50 per sq ft in Q2 2021, the highest in the UK, signalling that demand for Greater London locations remains strong as urban facilities move up the priority list for occupiers.
Additionally, the focus on business to consumer deliveries has created a requirement for more urban facilities to serve large cities across the UK. The increased importance of last mile logistics has contributed to inflated take-up of smaller units in recent quarters.
The scarcity of available XXL big-box units (500,000+ sq ft) is also a driver in the flurry of activity in the smaller big-box units (100,000-300,000 sq ft). Consequently, smaller units have accounted for 71% of H1 2021 transactions.
This trend is further demonstrated in the development pipeline. According to the report, 81% of speculative units under construction are smaller big-box units. These units are easier and quicker to construct due to costs and available land, meaning smaller units are likely to remain a key theme for the immediate future.
The current activity levels across the sector are forcing occupiers to take space based on what is physically available. Secondary prime locations are close to achieving rental figures that would be expected in prime locations, and with the lack of supply available, the only way for rents to go is up.
Although developers are reacting positively by speculatively building more warehousing, around one third of the units being built are either let or under offer. The construction pipeline is insufficient to meet the strong occupier demand which will result in a demand supply imbalance in the foreseeable future if developers don’t act.