Smaller and more speculative sheds are becoming dominant as developers cash in on the booming market.
Research from CBRE shows that the size and type of stock coming to market has shifted to smaller and more speculative developments. In Q1 2020, speculative development accounted for just 14% of space under construction. By Q4 2021, that had risen to 57%.
However, 76.5% of the spec space under construction in Q4 2021 was between 100,000 and 300,000 sq ft. CBRE said plots that would have previously been reserved for a 1m sq ft build-to-suit opportunity are now being used to build multiple smaller speculative units.
It added that this phenomenon, driven by developers looking to cash-in on the fast rental growth environment, would potentially create a mismatch with occupiers’ requirements for larger, bespoke units.
At the end of 2021, just 17.2m sq ft was available, representing a decline in the vacancy rate from 4.1% at the end of 2020 to an all-time low of 1.58%.
Meanwhile, investment volumes for UK logistics reached a record £16.5bn, an increase of 78% year-on-year. Prime yields dropped to below 4% across all UK regions in 2021, which puts them close to their maximum compression. According to the report, the impressive investment volumes are likely to continue throughout 2022, fuelled by operations including large platforms and portfolios.
Tasos Vezyridis, CBRE’s executive director for research, said: “Despite yields being at low levels and therefore forecasting a more contained capital value growth, the industrial and logistics sector is still expected to outperform all other sectors during the next five years. The key to the logistics sectors continued growth will be flexibility by all parties, while embracing trends that are expected to truly shape the market over the coming years.”
The report added that automation and robotics was becoming increasingly prevalent in UK warehouses. But it said the level of automation was still relatively low, with 60% using entry-level or base automation, such as conveyors, warehouse management systems and automated guided vehicles.
Keith Fernandez, CBRE’s director of warehouse consultancy, said: “Increasing labour concerns and environmental pressures mean investors, developers and landlords need to understand the impact of automation on occupier decisions and work with them to develop long-term sustainable solutions.”
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