Thought of the Week
Are the tides turning for UK logistics development?
February 29, 2024 3 Minute Read
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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