In the space of a few months the UK logistics market has virtually swung from a position of potential oversupply to one of (localised) near undersupply. Record take up caused availability to fall by 11% during the quarter to 65.6 million sqft, roughly where it was a year ago and some 30% below its post GFC peak All regions bar the Midlands and the South East are now undersupplied relative the to their long term average. Continued speculative development should help alleviate the supply shortage that has emerged across some submarkets and size bands. As at Q3, there was 3.5 million sqft under construction and scheduled for completion in 2021, in what is shaping up as another above average year for speculative completions. Developers/investors’ appetite for well located development land remains strong and continues to replenish the pipeline.
Despite positive movement in May, the economy failed to recover from the record falls seen in March and April 2020. GDP grew by 1.8% in May following a fall of 20.4% in April, the biggest monthly fall on record. After output shrank by 2% in the first 3 months of the year, data for Q2 is likely to confirm that the UK economy is in recession. Jobs data for the three months to May showed that there has not yet been a significant fall in the employment rate, which was 76.4%, just 0.2% down on the previous quarter. Forecasts suggest a swift recovery in 2021 as restrictions are lifted and the economy starts to function as normal. However, there remains a great deal of uncertainty around when the spread of COVID-19 might be contained and the implications of Brexit.
Average achieved values during Q3 rose by 4.5% from their Q2 level, which was, however, still 16% down on the first quarter. With the average asking-to-achieved ‘discount’ figure contracting to under 5% for the first time in four years (-4.9% in Sept 2016), upward pressure on prices looks probable in Prime Central London markets. Rents fall overall in Q3, but strong signs of a rebound have started. Average rents (£psf pa) fell by 4.7% in Q3 compared with the second quarter. However, with the glut of lockdown stock now being absorbed into the market, both let-to-asking ‘discounts’ and rents (90-days rolling average) are showing early signs of improving. Two years of falling values and rising rents, had led to a sustained strengthening of initial rental yields in Prime Central London, but with rental values experiencing Covid-related falls in excess of those in home values, gross rental yields have fallen back to 3%.
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