What we predicted

  1. Logistics demand will remain high driven by e-commerce and third-party logistics occupiers as e-commerce penetration continues to grow. Speculative developments will continue to increase although not at a fast enough rate to keep up with surging demand. This fierce competition will lead to accelerated rental growth, with some regions continuing the double-digit growth seen in 2021
  2. With investors building rental growth into their models, competition for logistics assets will remain exceptionally strong, with investment volumes projected to continue at high levels with yields continuing to compress. ESG requirements along with automation and robotics will become increasingly important for the logistics sector

What's happened so far

  • Strong take-up of logistics space persisted during early 2022 with the highest H1 on record, up 9.4% year-on-year
  • Contrary to recent patterns, pure online retailers accounted for a smaller amount of take-up than anticipated (13.6% in H1), but this did not impact overall take-up with a more even spread of sectors taking logistics space, including third party logistics (27.6%) and manufacturing (15.1%)
  • The development pipeline increased (17% vs end of H1 2021), however this has proved to be insufficient to support demand, with vacancy rates further compressing to 1.18% nationally placing further upward pressure on rental levels
  • Prime rents saw double digit growth year on year in H1, with the South East, Midlands, Yorkshire & North East experiencing the strongest growth
  • Yields compressed further in Q1 but moved out during the second quarter due to pressures from higher borrowing costs, with investment volumes remaining steady for H1

What happens next

  • We expect a continuation of strong demand, supported by the large amount of space under offer (19.4m sq ft) at the end of the Q2 signalling a busy year ahead. However, the lack of available stock could frustrate occupiers’ expansion plans, particularly for urgent requirements and temper take-up figures
  • Despite a slowdown during H1, e-commerce related take-up will increase again during the second half, particularly from omnichannel retailers catching up
  • Significant rental growth is set to continue, driven by the supply-demand imbalance as vacancy rates are expected to stay low
  • Considerations for occupiers such as environmental quality and capacity to implement automated technologies will become even more critical when making real estate choices
  • The investment market will face further pressure from the macroeconomic expectations and rising cost of debt; however we anticipate that conviction in the sector will remain robust