UK Logistics vacancy rate falls to all-time low sparking intensifying of rental growth
Vacant UK logistics space has fallen to 7.1m sq ft in Q3 2021, representing a record low vacancy rate of 1.53%, according to the latest research from global real estate advisor, CBRE.
This compares to a vacancy rate of 5% in Q3 2020, which saw 21.35m sq ft of readily available space, suggesting that the supply pipeline is struggling to keep up with demand. However, there are some positive signals, with speculative space under construction reaching a record high of 13.7m sq ft in Q3 2021.
Total take-up for Q3 2021 was 10.9m sq ft, compared with 13.6m sq ft in Q3 2020. A total of 36 deals have completed this quarter, a decrease of 20% compared to Q3 2020, which saw 45 deals complete.
Yorkshire and the North East led the regional take-up levels in Q3 2021 at 29%, closely followed by East Midlands at 27%. The South East, North West, West Midlands and South West accounted for 21%, 11%, 9% and 3% respectively.
At a sector level, online retail continues to dominate take-up, accounting for 39% in Q3 2021, demonstrating the long-term shift in shopping patterns.
In Q3 2021, speculative take-up accounted for the largest proportion at 46%, followed by build-to-suit at 39% and secondhand at 15%. By contrast, build-to-suit accounted for 45% of take-up in Q3 2020 amounting to 6.13M sq ft demonstrating the shift towards speculative take-up as a result of existing supply constraints.
In the first nine months of 2021, 79 speculative buildings have been let or are currently under offer, totalling 17.85M sq ft. This compares to 11.34m sq ft of speculative take-up across 54 buildings for the entirety of 2020. This, alongside strong secondhand take-up, demonstrates occupiers’ requirements to find immediately available space rather than waiting for purpose-built units to be constructed.
The logistics market continues to flourish with yet another quarter delivering in excess of 10 million sq ft of take-up. Supply levels are now critical, particularly in the northern belt that straddles the M62 motorway. There are clear signs that rental growth is gathering momentum across the UK and as we head into 2022, this will be the trend to watch.
This quarter has seen several lettings exchanged where the rental level achieved for prime units exceeds 20% above the quoted rent. Whilst all UK regions have experienced rental growth over the past 18 months, the sharpest increases have been in the South East, where unprecedented demand is inflating competition. This has led to prime rents around the M25 closing the gap with the super-prime M25 West area.