UK industrial & logistics take-up hits 8.2 million sq ft in Q2 2022
Despite economic headwinds, occupier demand in the UK industrial and logistics market remains strong
In Q2 2022 some 8.2 million sq ft was taken up in 31 separate deals involving Grade A warehouses of 100,000 sq ft and over. Following a first quarter in which 8.6 million sq ft was transacted, this brought the total for H1 to 16.8 million sq ft, 25% above the 5-year half-yearly average. In addition, another 6.4 million sq ft was under offer as at the end of June.
The take-up for H1 2022 compares with full year take-up of 35.4 million sq ft in 2021, the second highest annual level on record, and highlights that market demand has remained robust despite more challenging economic conditions. In addition, the amount of space under offer will support solid take-up in Q3.
The level of take-up was predominantly driven by demand for new space, with 7.9 million sq ft of floorspace taken up in new buildings, 96% of all take-up in Q2. Over the quarter, 55% of all new space taken up comprised space built or under construction speculatively, while 45% was Built to Suit (BTS) space.
In Q2 2022 17% of total take-up in Grade A space in logistics buildings of 100,000 sq ft and over was driven by e-fulfilment. Although over the recent years the growth of e-commerce has been an important driver of logistics property demand, the recent deceleration in online retail spending and e-fulfilment-related demand has also served to highlight the diversity of occupiers taking space and the emergence of new sectors. Logistics Service Providers accounted for 48% of total take-up, retailers (including pure-play internet retailers) accounted for 26% and manufacturing companies accounted for 13% of all floorspace. ‘Other’ uses made up 13%.Available Grade A supply across the UK decreased by 7% over the quarter to stand at 19.0 million sq ft at the end of June, including space under offer. The available space comprised 5.7 million sq ft in immediately available ready-to-occupy buildings and 13.2 million sq ft under construction speculatively.The total available supply represented a UK vacancy rate of 5.3%, or just 1.6% if speculative space under construction is excluded.
With demand proving to be resilient to date and supply staying low, prime logistics rents have continued to trend upwards. In the year to June 2022, prime headline logistics rents increased by 19% across the 32 locations that JLL monitors across the UK.
Ed Cole, Head of Logistics, JLL, commented: “It was another strong quarter for demand and take-up in the logistics market. This resilience was particularly notable given the economic headwinds, continuing supply chain disruptions and low levels of logistics building supply across the market. The diverse nature of occupier sectors comprising the demand was also positive, continuing to illustrate the market is not simply reliant on e-commerce. Prime rents have continued to see upward movement and we anticipate that occupational demand in core established locations will remain solid.”
Joel Duncan, Director of Capital Markets, added: “Given weaker economic growth, higher inflation and rising interest rates, the investment market is entering a more challenging period. However, our data continue to highlight that occupational market fundamentals remain resilient. Whilst the rising costs of debt is inevitably putting pressure on pricing, there is still good investor demand for the right product at the right price, and we continue to expect the industrial and logistics sector to deliver outperformance relative to all property over the medium-term.”
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