UK Logistics take-up remains robust in Q1 2020
The UK logistics market had a strong start to the year, achieving total take-up of 6.26m sq ft in Q1 2020, compared to 4.41m sq ft in Q1 2019, according to the latest data from global real estate advisor, CBRE.
Eleven deals completed during the quarter, a 39% decrease compared to Q1 2019 which saw 18 deals close. However, the average unit size in Q1 2020 was much larger at 568,940 sq ft, compared to 244,954 sq ft in Q1 2019. Total availability at the end of Q1 2020 was 25.73m sq ft, of which 11.44m sq ft comprised of new speculative developments. This represents a UK vacancy rate of 5.3%.
Yorkshire & the North East proved the most attractive region accounting for 46.7% of UK take-up for the quarter, followed by the East Midlands (38.3%), North West (10.2%) and the South East (4.8%).
At a sector level, online retail once again accounted for the largest proportion of take-up at 34%. The Retail (Food) sector saw a substantial increase, accounting for 20.8% of take-up in Q1 2020, whereas in Q1 2019 it didn’t register. The use of online retail for grocery shopping has increased due to the restrictions of the current lockdown caused by COVID-19. As a result, some major supermarkets are reoccupying previously vacated space to meet demand and CBRE expects the online penetration of grocery sales to increase from a previous level of around 6%. This will elevate the UK’s use of ecommerce, already amongst the highest in the world, whereby one fifth of everything bought is online.
There are currently more than 50 occupier requirements for warehouse space in excess of 100,000 sq ft across the UK. Many of the NHS enquiries are targeting smaller spaces, whereas some food retailers and third-party logistics operators need larger units. Buildings with chilled and frozen capability are attractive, as are fitted buildings with racking and sprinkler systems in place. Generally, short-term or flexible leases are desired to accommodate stock piling of non-perishable goods that aren’t selling due to the temporary closure of shops. It has been widely reported that retailers such as M&S, Ocado and Aldi are currently seeking additional warehouse space ranging for both short-term needs to long-term strategic investments.
The Logistics sector has the potential to emerge even stronger following this challenging period. We anticipate higher demand for storage facilities across the UK, particularly from online retailers and the Third-Party Logistics operators as businesses reshape their property supply chains to meet the evolving needs of consumers. Nevertheless, the sector is not escaping the current disruption with some landlords receiving requests for rent deferrals, especially from struggling high street retailers. Some owner occupiers are also exploring selling their physical assets through sale and leasebacks to shore up balance sheets in the short-term.