The UK logistics market posted a year-on-year decrease in occupier demand during Q3, but activity from manufacturers has aided a quarterly uptick in take-up levels, according to new data.
Findings from Gerald Eve show take-up stood at 11.1m sq ft in Q3, up by 12% on Q2 but down by around 25% on the same point a year ago.
Researchers said the breakdown of take-up in Q3 contrasted typical occupier activity over the past three years. Manufacturers, particularly in the housebuilding and construction, food and automotive sectors, were notably active.
Some of that demand was attributed to nearshoring operations and efforts to improve supply chain resilience. Gerald Eve also underlined the “natural churn” of lease events, which gave “a proportion” the opportunity to upgrade to more energy-efficient accommodation.
The overall rate of availability increased again in Q3 to 5.9%, up from 5.4% in Q2. The increase was driven by additional speculatively built stock, rather than an increase in unwanted second-hand space.
Sublets continued to be a notable market feature, accounting for 14% of all Q3 availability.
Gerald Eve said the logistics spaces marketed during the period were typically of “good quality” with high energy-efficiency ratings. More than 50% of up-and-built space on the market was rated EPC A or B, rising to 76% when including EPC-exempt space that is being refurbished or constructed and targeting EPC A.
Headline prime rents were up by 6.6% over the past year.
The research also highlighted the radical changes the market has endured during the past few years. After the initial significant boost resulting from the abrupt changes in consumer behaviour and business activity, researchers noted that most market indicators have now “broadly” returned to the five-year pre-pandemic trend.
Growth in speculative development activity, occupier demand, the rental market and the volume of investment were shown to “broadly” return to pre-pandemic trends, although demand from internet retailers remained subdued.
Josh Pater, partner at Gerald Eve, said: “Occupiers are successfully navigating the current more challenging operating conditions. Nevertheless, making property decisions in such an uncertain time is even more difficult now than a few years ago.
“Tenants are doubling down on the fundamentals – implementing resilience in supply chains, and looking for cost savings wherever possible. Energy-efficient buildings which offer true cost savings and in locations with attractive labour pools and future-proofed power provision offer more leeway in occupier affordability. These kinds of buildings are driving the prime rental market.”
Nick Ogden, partner at Gerald Eve, said: “Prime logistics pricing has effectively held steady for the last six months, with investor demand focused on prime stock where supply has been limited.
“Forward interest rate expectations are now lower and less volatile, and secondary assets remain liquid, but investors are allowing for more capex linked to MEES. For now, there’s still a lack of forced sellers across the spectrum, so buyers are expected to be faced with a limited pool of stock, and Q4 volumes are likely to remain well below the last couple of years.”
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