The big box logistics market has seen take-up and investment slow down in the first half of 2022, as vacancy rates reach record lows.
The latest DTRE Big Box Logistics report showed £1.7bn of single-let facilities traded in the second quarter of 2022, bringing the half-year total to £3.4bn. This was 5% below the previous quarter and down by 43% on the previous half year.
The biggest deal in Q2 was Project Resolve, a cross-sector portfolio purchased by Oval Real Estate for £925m, of which £453.5m was industrial. Other notable transactions included the circa £73.8m sale-and-leaseback of a 466,000 sq ft Boots distribution centre in Burton on Trent, to ICG Longbow.
Researchers observed that pricing has softened over the past two months in response to the rising cost of debt, with investor attitudes becoming more conservative with regards to underwriting assumptions.
However, the report’s authors noted that rental growth in the sector is still underpinned by solid occupier demand and the ongoing lack of supply. The report’s authors have predicted 4.6% annual rental growth across the UK to the end of 2024.
Take-up in the second quarter stood at 9.3m sq ft, totalling 20.1m sq ft in the first half of the year. This was down on 15.6m sq ft during Q2 last year, and 23.6m sq ft for H1 2021. However, occupational levels exceeded a 10-year interim average of 18.3m sq ft.
Notable leasing transactions during the period included Iron Mountain’s 1m sq ft deal at Symmetry Park Rugby, a 484,000 sq ft letting at Coventry Logistics Park and the letting of Monarch 330 to Danish Crown in Rochdale.
The vacancy rate reached an all-time low of 2.1%, with only two grade A buildings in the UK available for immediate occupation in the 300,000 sq ft-plus market.
Speculative development remained at low levels, amid soaring inflation and supply chain issues. DTRE identified just 16m sq ft of speculative space due to finish construction by the end of 2022.
Overall, researchers at DTRE said the industrial market will withstand the “stumbles” of the UK economy better than other sectors. It pointed to findings from MSCI’s monthly index that show yields have narrowed to 3.3% at the end of May, from 3.6% at end of March.
The report’s authors said: “We expect to see an adjustment in yields for end June. As of yet the shift in yields is sentiment driven, with a lack of hard evidence.”
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