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News Release

London

Challenging outlook in store for the logistics sector

Says Jones Lang LaSalle in latest UK Industrial and Logistics market report


London, 19th October 2011 - New research from Jones Lang LaSalle suggests a challenging outlook for the UK big box logistics sector, as occupier demand has weakened this year.  
 
The research shows that nationally occupier demand for big box logistics facilities weakened in the first half of 2011 with preliminary estimates showing that this slowdown continued in Q3. The take-up of Grade A distribution space was 52% lower in H1 2011 compared with H2 2010.
 
However, availability also fell. Nationally, Grade A availability dropped by 8% between end-2010 and mid-2011. Prime headline rents have generally stabilised and may increase in several areas over the next 12 months.
 
Investor demand is strong, focusing on prime stock let to strong covenants on long leases.  The supply of investment stock has increased recently as a number of portfolios have been brought to the market.  At September 2011 prime yields for single let logistics units stood at 6.25% in the South East and 6.75% in the regional markets, although there is evidence of lower yields for exceptional covenants and longer leases particularly with fixed rental uplifts.
 
In the short-term, weak economic growth and confidence are likely to suppress occupier demand, and longer term, a number of factors are coming together which could change location decision-making for occupiers and challenge the current map of logistics.
 
Jon Sleeman, UK Research Director at Jones Lang LaSalle commented: “Going forward a number of factors are likely to become increasingly important location drivers for occupiers of distribution space. These include the growth of online retail sales and the associated need for distribution facilities to service this, the growth of portcentric logistics and a predicted growth in rail freight. Overall, therefore, location decision making will change for some major occupiers.’