Industrial and logistics take-up of warehouses exceeding 50,000 sq ft reached a record 30.8m sq ft during H1, according to the latest findings from Knight Frank.
The research showed that the latest total was nearly double the take-up recorded in H1 2020.
Investment volumes reached a record £6bn, more than double the £2.7bn recorded in the first half of last year and 54% higher than the previous H1 record in 2018.
Take-up surges
Retailers and distribution companies accounted for 76% of leasing activity, as they sought to expand their online and home delivery capacities.
Online sales accounted for 28% of retail spending in 2020, up from 19% in 2019. Knight Frank said that this rose to 32% in the first five months of 2021.
Availability has shrunk over the past 18 months, with just 43m sq ft of vacant space in the market. This represents eight months of supply, based on current take-up rates. Knight Frank said that most of this space is either under offer, or does not meet current occupier requirements in terms of location or specification.
Lack of availability is particularly acute in the big box market, with limited options for operators looking for warehouses measuring more than 350,000 sq ft.
Charles Binks, partner and head of industrial and logistics at Knight Frank, said: “Many occupiers are struggling to find available units that match their requirements, and often have to compromise either in terms of location or specification.
“Companies that are unwilling to compromise may need to put their expansion or relocation plans on hold as they await development completion.
“Online retail spend forecasts have been revised up over the past 18 months, and operators have brought forward their e-commerce growth strategies. Yet, despite robust levels of demand from online retailers, distribution companies and 3PLs, the lack of available space and constraints on development are likely to impact on an operator’s ability to acquire space in the coming months.”
Investment rockets
Overseas investors accounted for more than half of total spending on warehouses so far this year, compared with 44% in 2020 and 38% in 2019.
The average lot size transacted in the first half of 2021 was £20.2m, compared with £17.9m last year and £11.9m in 2019. Knight Frank said this was largely driven by increased activity from overseas investors, as well as UK institutional investors seeking to diversify their holdings.
Overall, industrial and logistics yields have compressed 25-100 bps over the past year.
Johnny Hawkins, UK capital markets partner at Knight Frank, said: “Despite yield compression, core logistics assets offer an income and risk profile that is difficult to match in other real estate sectors.
“Structural trends such as the unprecedented level of e-commerce penetration, a limited supply of high-quality assets and robust occupier demand for space have created the perfect storm, and the investor base targeting industrial and logistics assets is continuously broadening, demonstrating the wide appeal of the sector.
“High-quality distribution facilities can offer secure and often inflation linked income through strong covenants on long leases. Long-income options underpinned by strong structural trends are difficult to find across other asset classes, and this has notably created increased competition for assets.”
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