Following a record year in 2020, there was no sign of logistics and industrial leasing momentum slowing down in the first three months of 2021. Transactions reached 12.5 million sq ft, a 115% and 55% rise on Q1 last year and the 10-year average respectively. The number of deals (88) was 70% higher than a typical Q1. Most deals (94%) concerned existing stock. Retailers, parcel delivery and 3PLs remained in the driving seat, accounting together for some 70% of quarterly take-up. Interestingly, in London and in South Wales, several recent requirements continue to emanate from film studios. In London, this occupier group has taken nearly 1 million sq ft over the last two years. Most regions performed well, with the North West being a stand-out performer as it recorded its strongest Q1 on record (3.1 million sq ft). With over 16 million sq ft under offer as at end of March, 2021 is shaping up as another strong year for UK logistics.
The UK unemployment rate fell for the second consecutive month to 4.9%, a level supported largely by the government’s job retention scheme and an increase in hiring as employers look forward to the reopening of the economy. While unemployment is currently relatively stable, the planned end of the job retention scheme in September 2021 still represents a risk for an estimated 4.7 m employees who remained furloughed in March.
Office space take-up totalled 2.0 m sq ft in the first quarter, a rise of 42% on the previous quarter’s level. Leasing activity remains well below the five-year quarterly average of 3.6 m sq ft. There is strengthening demand, particularly from large tenants looking at pre-let deals activity in London increased significantly, with take-up more than doubling from the previous quarter’s level. In the UK regions take-up fell to 670,000 sq ft, the lowest since Q2 2020.InLondon the vacancy rate rose to 6.8%, the highest for more than 10 years although still relatively low in comparison to some other global cities.
Prime Central London Residential
Average achieved £ per square foot values in Prime Central London residential increased significantly during Q4 2020 (from Q3 2020) buoyed by a strong Autumn market. While a quarterly rise in isolation does not necessarily indicate a continuation of recent house price inflation, it acts a strong indicator of overall market strength. While our 365-day index of rental values shows rental prices remaining in a state of lockdown induced freefall, the average £ per square foot, per annum value achieved in Q4 2020 indicates we may be about to see the bottom of the market. With lockdown restrictions potentially being eased in April, we would anticipate a return to rental inflation towards the end of May. The combining factors of stable values and falling rents has seen gross rental yields in Prime Central London fall below 3% for the first time in recent history. This contraction is even greater in Outer Prime London markets, where these combining trends are exaggerated.
Retail: tourists and office workers are the missing ingredient to high street recovery
A few months have passed since the re-opening of non-essential retail back in April and the latest data releases paint a picture of a steadily recovering high street. GfK Consumer Confidence Barometer was back to pre-pandemic levels in June and retail sales surged 11% above 2019 levels in May according to the ONS. By contrast, footfall was still down by 27% relative to 2019, albeit this represents massive improvements from -63.7% registered in March. Not so surprisingly, shopping destinations more reliant on office workers and tourists for trading are taking longer to recover given the continued high prevalence of home-working and ongoing restrictions to international travel. In the second week of July, footfall across the London’s New West End was still down by 63% relative to the corresponding week in 2019. We estimate that only 12% of the top 20 nationalities of international visitors to London were in the UK government “Green List” at the time of last update. The lifting of all main social distancing restrictions from 19 July should continue to support the recovery in footfall albeit further policy changes cannot be ruled out.
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