Warehouse Market Recovers Post-Pandemic, Yet Prime Supply Worries Persist
The industrial and logistics sector witnesses a significant surge in warehouse demand, returning to pre-Covid levels, according to a recent market report by Colliers. However, concerns about the future supply of prime warehouses loom.
A Resurgence in Warehouse Demand
The first half of 2024 saw the take-up of industrial space exceeding 100,000ft2 reach 13.3 million ft2, marking a 4.4% increase from the previous year, across 53 deals. Major deals, including Yusen Logistics’ pre-let of 1.2 million ft2 at SEGRO Logistics Park Northampton and Nike’s 1.3 million ft2 pre-let at Magna Park Corby, underscore this resurgence. The Midlands emerged as a hotspot, with significant deals contributing to the region’s strong performance in Q2.
The Popularity of Second-Hand Space
The report revealed that second-hand space was the most popular category, accounting for 37% of total take-up, followed by build-to-suit units at 31%, and speculatively developed spaces at 32%. Storage and third-party logistics providers were reportedly the most active occupiers, making up 46% of the take-up, with wholesale and retail sectors trailing at 24%.
Robust Rental Growth Despite Slowdown
Despite a slowdown compared to recent years, rental growth remains robust. MSCI data reports a quarter-on-quarter growth of 1.5% and a year-on-year growth of 6.8%. Investment volumes reached £3.5 billion in the first half of the year, aligning with the pre-Covid five-year average.
Concerns About Future Supply of Prime Warehouses
The UK’s industrial market vacancy rate stabilised at 7.3% in Q2, a slight decrease from 7.5% in the previous quarter. However, speculative warehouse development has slowed, with only 6.1 million ft2 delivered in the first half of the year, a sharp decline from the 11.3 million ft2 in the latter half of 2023. This has raised concerns about the future supply of prime warehouses, particularly regarding ESG credentials.
With the UK election concluded and signs of an improving macroeconomic environment, Colliers expects demand to rise in 2025. However, the firm warns of a potential reduction in prime supply, which may pose challenges for future industrial occupiers. Strategic resilience will be key in navigating these challenges.
