Evidence is building for occupiers to seize opportunities now to secure warehouse space – if they can.
By Liza Helps Property Editor Logistics Matters
REAL ESTATE analytics firm CoStar reports that nearly half of all the warehouses completed across the UK last year did so without a tenant in place, with occupancy falling from 72% in 2022 to just 54% last year.
This is because there were high levels of speculative warehouse completions paired with a cooldown in tenant demand amid high interest rates and economic weakness.
According to CoStar net absorption of logistics space across the UK slumped to a 12 year low of around 9 million ft2 in 2023.
CoStar analyst Grant Lonsdale said: “The figure is far below the 40 million ft2-plus of new stock delivered in response to the heightened levels of occupier demand seen heading into 2022.”
Consequently notes Lonsdale: “Logistics vacancies rose at their fastest pace since 2009 to hit 4.7%, their highest level in seven years, but still comfortably below the double-digit rates seen a decade ago.
“With around 20 million ft2 of newly delivered warehouse space sitting empty, alongside a further 10 million ft2 from 2022, 5 million ft2 from 2021, and nearly 70 million ft2 from previous years, landlords are having to do more to attract tenants.”
Headline rent levels are still sacrosanct but Lonsdale noted: “Rent-free periods are lengthening in some markets. For example, a logistics firm was able to negotiate 21 months’ free rent when it leased a 180,000 ft2 warehouse in Nottinghamshire in December. The incentive was considerably more than the six months secured by another tenant taking 130,000 ft2 at the same distribution park in March. Both units were built speculatively in 2022 and the lettings were for 15 years.”
Currently, according to CoStar research big box vacancy rates in Nottinghamshire have shot up over the past 12 months from sub 1% to nearly 9%. Across the East Midlands region, the amount of unoccupied big box space has more than doubled since late 2022 to 12 million ft2, reflecting 6% vacancy.
A similar story has been playing out in other markets, particularly those that have seen significant amounts of speculative development. In Bristol, 100,000 ft2 plus vacancies have risen to 8% from 4% a year earlier, largely thanks to the delivery of 1.3 million ft2 at Panattoni Park Avonmouth.
According to CoStar “Most industrial market participants say they are receiving less space enquiries, though not all warehouse owners are in a significantly weaker negotiating position. Indeed, a sizeable last mile facility in supply-starved London is understood to be under offer with only three months’ free rent on a 10-year lease.”
While this certainly bodes well for occupiers right now, there is a sting in the tail. Developers and investors shut off speculative supply abruptly last year and according to DTRE’s research partner Robert Taylor in the company’s latest Big Box Logistics market review there is only 5.7 million ft2 of new speculative development due to complete in 2024.
“This will be the lowest level of new speculative completions of Big Boxes since 2017. Available planning permissions and prohibitive site enablement costs will ensure that on-site starts will remain suppressed.”
With macro economic conditions expected to get better and latent demand increases, supply will get absorbed and with no new space coming on line occupiers could face shortages through 2025/26.
