Thought of the Week

Are the tides turning for UK logistics development?

February 29, 2024 3 Minute Read

By Jen Siebrits Miranda Botcherby

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The level of logistics stock under construction has been consistently slowing for the past four quarters. But we may have reached a turning point, 22 new developments started construction in Q4 2023. These 22 schemes accounted for 24% sq ft of space currently under construction and represent a 54% increase in the amount of new space starting construction QoQ.

Figure 1: Stock Under Construction

Source: CBRE Research

The bulk of construction that started in Q4 2023 is located in the North West (41%). This region had the lowest vacancy rate during the pandemic, reaching 0.2% in Q2 2022, and has been relatively slow to respond to increased demand due to planning delays. While the region’s vacancy rate has moved out since the pandemic (4.6% Q4 2023), it remains below the national average. Relatively tight supply and demand dynamics are reflected in the region’s prime rents, being the only region to see double digit growth last year (+23.5%).

A further 33% of new constructions started in Q4 2023 were in the East Midlands. This is not surprising given the region’s strategic location and reflects recent strong market activity; during 2023 it was the only region in the country that saw an increase in take-up YoY (+33%).

Another indicator pointing to growing market confidence is the share of speculative developments currently under construction. While at the start of 2023 these amounted to 50%, by Q4 this share had increased to 57% (with the remaining being build-to-suit). Further evidencing this trend, 85% of the new construction starts in Q4 2023 were speculative builds.

Although 2023 take-up was broadly in line with the pre-pandemic 10-year average, elevated base rates will continue to have knock-on consequences to development costs and values. As such, while it is encouraging to see increasing confidence in the market, it may be a little premature to suggest that we’re at a turning point just yet – although certainly a trend to watch.

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Thought of the Week

Navigate the ever-changing real estate landscape with CBRE's Thought of the Week. The series features our experts’ views, offering insightful perspectives into the latest market trends in the UK that are shaping the industry.

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