Prime Logistics is an essential tool for any developer, investor or occupier interested in the market for logistics buildings over 50,000 sq ft in size across each of the UK’s 26 key distribution markets.
MARKET OVERVIEW
Occupier demand for UK logistics is at a record high and supply is at an all-time low. Since the onset of the pandemic, speculative developers have responded, but any extra space has so far been absorbed by occupiers. Despite high land values and increased development costs, there is renewed emphasis on securing development land and planning activity is elevated. Rents are growing stronger than previously expected and we have upgraded our forecasts to reflect these acute market conditions.
OUTLOOK
Occupier activity to remain elevated in 2021
There is over 7 million sq ft of up-and-built space under offer across the country and over 8 million sq ft in the pipeline awaiting planning permission. MPS1, a 747,000 sq ft speculatively developed building in Magna Park Lutterworth is rumoured to be under offer to Amazon, as is the largest available secondhand building in the UK – the 736,000 sq ft former Debenhams unit in Peterborough. The relatively short void periods on these buildings represents the urgency of occupier requirements, even for the largest of buildings.
Rental growth forecasts upgraded
Such intense occupier market conditions have meant that we have upgraded our national prime logistics rental growth forecasts. The base case outlook for UK prime logistics headline rents is for an above inflation average annual growth of 4.3% per year over the next three years. This is above the long term average and even stronger than the average 4% per year recorded over 2016-20. Rental growth is forecast to be frontloaded in 2021, increasing by 7% while market conditions are the most acute.
Developer confidence is high, but construction costs are rising
Looking to the second half of 2021, well capitalised developers will likely continue to start speculative developments and plans have been submitted on several schemes in Q2. Activity is likely to be strongest in the North West, Yorkshire and the East Midlands, where several sites linked to established developers have recently received planning permission and forward-fundings are in progress. Construction costs – both in terms of materials and labour – are high and rising, which in turn will put further upward pressure on rents on these schemes.
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