Occupational demand within the UK industrial and logistics sector fell over the past three months, forcing developers to slow their investment activity, according to research by Cushman & Wakefield.
The most recent data has showed take-up in the three months to the end of September totalled 6.2m sq ft across 43 deals – the lowest quarterly volume since the start of 2020. The figure is down by 10.8% year-on-year and 42.5% quarter-on-quarter.
But despite the drop-off in the quarterly volume, take-up of industrial and logistics space for the first nine months of this year stood at 26.2m sq ft – 15% ahead of the same period last year.
Richard Evans, international partner and head of UK logistics and industrial at Cushman & Wakefield, said: “Q3 proved to be a quiet quarter for the market, with take-up falling markedly. Despite this, activity levels are largely in line with pre-pandemic norms and vastly improved on this time last year. This in itself is a remarkable achievement and points to the resilience of our sector.”
Cushman & Wakefield suggested the Q3 slowdown was primarily marked by a lack of deals in excess of 200,000 sq ft that had previously helped keep occupancy statistics buoyant.
No deals were recorded for e-commerce occupiers during the third quarter of this year, while the post and parcel sector occupiers have returned to the market, with four deals being signed in the quarter. Elsewhere, food manufacturing, wholesale and distribution sector occupiers proved particularly active, with bakeries alone signing for 1.1m sq ft of space during 2024.
From a regional perspective, the Midlands and North West continue recorded strong figures, accounting for 65% of all activity during the quarter.
Supply rises for first time in 2024
Vacancy levels increased by 1.7% quarter-on-quarter to 62.2m sq ft over 429 buildings, driven by an uplift in the volume of available grade-B space. This marks the first rise in supply since the end of 2023.
The amount of grade-A space remained largely unchanged at 44.8m sq ft. However, planning applications are continuing at pace in primary markets, pointing to a likley uplift in grade-A space from 2026 onwards.
The volume of grade-C space has continued to contract as a result of assets being withdrawn for redevelopment or refurbishment, driven by forthcoming ESG compliance regulations, with just 5m sq ft of space currently available, the lowest ever on record.
Cushman & Wakefield has signalled a lack of stock choice across the South West, Wales and the West Midlands regions, with the number of new construction starts falling to 2.2m sq ft from 2.4m sq ft quarter-on-quarter. The total volume of space under construction stood at 13.6m sq ft as at the end of September.
Investment reneges amid uncertainty
Total investment into the UK logistics and industrial sector reached £1.4bn during Q3 2024, a 16% contraction on Q2 2024 and 32% below the same period last year. The year-to-date figure stands at £4.5bn, 13% below Q3 2023.
The activity was hindered by a reduction in single-let deals, most notably for schemes of more than £25m. Instead, investors have favoured balanced portfolios of multiple UK logistics and industrial assets as well as multi-let assets offering meaningful and quicker access to reversion.
Turning to returns, pricing for the logistics and industrial assets in the UK has held relatively stable, despite a reduction in transaction levels so far this year.
Cushman & Wakefield found the keenest pricing can still be found in London and the South-East, where prime yields are 4.7% and 5%, respectively, owing to the sustained prospect of rental growth. Average prime yields in the UK are at 5.4%.
Charles Howard, partner for logistics and industrial capital markets at Cushman & Wakefield, said: “Although investment volumes have remained muted through 2024, positive sentiment remains.
“The depth of demand and competitive tension synonymous with the sector is still prevalent. We expect this continue throughout the rest of the year and the sector to trend towards yield compression in 2025.”
Image © EFAFLEX_Schnelllauftore/Pixabay
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