One of these trends is that the vacancy rate is unlikely to grow much more thanks to a general reduction in the construction of new spaces for the market and the take-up of larger spaces reaching to pre-pandemic levels again.
Analysis from Cushman & Wakefield states that the total volume of industrial and logistics space rented in 2023 was slightly less than 32.5m sqft. This is 2% under the five-year pre-pandemic average and a return to long-term levels of activity for larger units.
The rise of third-party logistics companies continues apace, for example in the e-commerce sector. It is these firms that are driving the take-up of units in Q1 2024 along with discount retailers in need of warehouse space and “nearshoring” businesses that are bringing their operations closer to home as the impact of Brexit continues to become clearer.
This is illustrated by research from Prologis, reported by Savills, which anticipates the online retail sector in the UK will grow by more than 7% a year to a total of 28.4% by 2027. Put in real terms, it is expected that these firms will need approximately 48m sqft of warehouse space over that time period to meet demand.
Analysis from CBRE shows us what that means in Q1 2024 – that we can expect these types of firms to account for 40% of all take-up this year and push demand for smaller and mid-sized units.
The Cushman & Wakefield forecast backs up this impression, noting that the 50,000-100,000 sqft and 100,000-150,000 sqft outperformed the five-year pre-pandemic average by 16% and 43% respectively. Overall, they accounted for 46% of total demand last year and it is expected that this will continue over Q1 2024 and beyond.
However, it should be noted that larger spaces are still in high demand too, with CBRE identifying almost 10m sqft of big box logistics space across the UK currently under offer.
When it comes to specific categories of unit, premium space will continue to grow in popularity over Q1 2024 and the rest of the year. This is especially the case for units which are built and operated sustainably, and which help occupiers with their ESG reporting commitments.
The popularity of these units compared to older, less sustainable units will affect two other aspects of the industrial and logistics property market. Firstly, rental values are likely to become more polarised as occupiers compete fiercely for the best spaces and lack of demand for older spaces causes rents to fall in that area. Secondly, pre-lets at new developments like Deeside Industrial Park which promise high BREEAM ratings and other environmentally friendly features will become more commonplace as occupiers try to lock in space ahead of time.
What does this mean for anyone looking to rent industrial and logistics property in 2024? Most importantly it is clear that companies looking to expand their operations or move to a new facility should consider doing so sooner rather than later.
Not only are the best currently operational spaces seeing high demand now, but the best of the spaces currently under construction are also being let at a high rate before they complete. Moving quickly to secure a space with modern amenities, ESG-friendly sustainability measures and a prime location is advisable.
Want to rent industrial and logistics space? Browse our availability today and get in touch with the team.
