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UK MarketBeat Reports

11/02/2021

Industrial

The UK logistics market witnessed a record year. Bolstered by the strongest Q4 ever recorded (14.3 million sq ft) annual take-up soared to an all-time high of 50.4 million sq ft. The pandemic and ensuing lockdowns accelerated the shift to online ─ online sales doubled in the space of 9 months when it took 5 years to grow by as much pre-Covid ─ leading to a surge in demand from ecommerce and Post & Parcel operators that accounted for nearly 40% of annual take-up. Amazon alone acquired over 12 million sq ft in 21 units. Several requirements also originated from retailers needing extra space to accommodate a surge in inventory levels at the onset of the pandemic, NHS-driven PPE supplies and Brexit-related stockpiling. 

Office

The extension of the government’s job retention scheme is believed to have slowed the rise of the unemployment rate, which was 4.9% at the end of October. The unemployment rate has risen sharply during 2020 and is now at its highest level since 2016 although it remains comfortably below its peak of 8.4% in the years following the global financial crisis. Demand for office space remained subdued while supply continued to rise in some locations. Take-up rose to 1.4 m sq ft in the final quarter, the highest quarterly total since before the first lockdown in March 2020. However, leasing activity remains well below the five-year quarterly average of 1.9 m sq ft. Total take-up for the year reached 7.7 m sq ft, comparable to the period immediately after the Global Financial Crisis. UK office investment turnover rose to £4.2 bn in the final quarter of the year, more than double the previous quarter but still 33% below the same quarter last year. The increase in activity signals renewed confidence in the sector after fears over the effects of working from home on occupational demand; many businesses have now indicated that the office remains important despite changing working practices. 

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 

The crisis gripping the high street saw more retailers filing for CVAs and administrations during Q4, with Debenhams and Arcadia among the most notable casualties. According to the Centre for Retail Research, 2020 was the worst year on record for the number of companies/employees affected by retail failures (54 and 109,000 respectively). The third national lockdown is only likely to pile further pressure on struggling retailers and F&B operators. Retailers also remain nervous about the potential withdrawal from April of the business rates relief and the ban on eviction of commercial tenants. Likewise, in the wake of Brexit, some retailers have expressed concern over the abolition of tax-free shopping that will see international tourists unable to claim VAT refunds on items purchased in the UK. Unsurprisingly, the online sector continued to perform strongly, with online sales doubling between March and December. Overall, online accounted for nearly 30% of retail sales in 2020.

 

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