Amazon has helped to drive record take-up in the UK’s industrial and logistics real estate market, which has hit fresh highs for investment and occupier activity.
Lambert Smith Hampton’s Industrial & Logistics Market 2021 report found take-up stood at 59.7m sq ft in 2020, up by more than a fifth on the record set in 2016. More than 10% of that take-up was linked to Covid-19-related demand, such as PPE distribution. Amazon accounted for a fifth of all take-up, including three transactions for more than 2m sq ft.
“The market has been turbocharged over the last year,” said James Polson, national head of industrial and logistics at LSH. “Covid-19 has accelerated structural changes in consumer and business behaviour that will continue to drive high levels of occupier and investor demand for logistics property over both the short and long term.”
There are now live requirements in the market totalling almost 50m sq ft, LSH said, driven by increased online retail activity. On the back of that demand, speculative development is picking up; an all-time high of 11.5m sq ft of speculative development on units larger than 50,000 sq ft was under construction at the end of 2020. A further 13.7m sq ft is likely this year, although supply remains constrained and fell over 2020.
In the dealmaking market, £6.9bn of investment was struck in 2020, including a record £5.5bn of distribution warehouses. The final three months of the year saw a quarterly record of £3.4bn. Yields hit a new low, with long-leased distribution warehouses in the South East tightening by 25 basis points to 3.75% and lower yields expected this year.
Alex Carr, head of industrial capital markets at LSH, said: “The pandemic brought the sector’s defensive attributes to the fore in 2020, driving another burst of yield compression and record volume for distribution product. Industrial and logistics is set to continue outperforming the wider commercial property market for the foreseeable future, and there is an almost limitless amount of global capital seeking out quality UK product.”
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