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Insatiable Demand from E-Commerce Drives UK Logistics Take-Up to Record Levels

13/07/2021
  • Online retailers accounted for nearly 40% of Q2 take-up volumes
  • Q2 2021 was the strongest quarter ever recorded with take-up reaching 19.4m sq ft
  • Availability has fallen to an all-time low placing upward pressure on rents
  • Investors have continued to pile into the sector with almost £6bn of investment taking place in H1 2021

Demand for UK logistics and industrial space shows no sign of slowing down as take-up in Q2 continued to be buoyed by insatiable demand from e-commerce. 

Online retailers accounted for nearly 40% of quarterly transaction volumes, according to latest data from Cushman & Wakefield, with take-up reaching 19.4 million during Q2, the strongest quarter ever recorded. 3PLs also remained extremely active, accounting for over 20% of quarterly and year-to-date take-up.

In a sign the market has shifted up a gear since the arrival of the pandemic, quarterly take-up has averaged over 15 million sq ft since Q2 last year, compared to the long-term average 8.3 million sq ft pre-pandemic. As a result, year-to-date take-up stands at 32.4 million sq ft, which is only marginally below the annual total average pre-COVID.

Yorkshire was the stand-out performer in Q2, with 5.5 million sq ft transacted during the quarter, including Amazon’s 2 million sq ft pre-let at Wakefield Hub. The Midlands also continued to register strong levels of activity, with over 4 million sq ft transacted in the East Midlands alone during Q2.  

Robust leasing activity has depleted availability to an all-time low of 54.4 million sq ft during Q2. Of this, 15 million is currently under offer plus another 14 million sq ft of pre-lets, taking the total amount of space under offer to 29 million sq ft. Exemplifying how tight the market is, there were no new buildings larger than 300,000 sq ft available for immediate occupation at the end of the quarter (excluding units under offer), meaning occupiers’ options at the larger end of the market will be restricted. 

Richard Evans, Head of UK Logistics and Industrial at Cushman & Wakefield, said: “The logistics sector continues to break new ground with record take-up levels fueled by the unstoppable rise of e-commerce. A lack of availability is likely to be exacerbated by ongoing construction material shortages which is hampering developers’ ability to respond to record levels of demand. As a result, the current acute demand-supply imbalance is likely to persist, placing further upward pressure on rents.”

Investors have continued to pile into the sector lured by healthy fundamentals and strong rental growth expectations. The quarter saw £3bn worth of investment, taking the H1 total to just under £6bn, more than double the £2.4bn registered over the same period last year. 
With over £4bn worth of assets available, under offer or at bids stage, volumes are on course to surpass £10bn in 2021 for the second time since records began.

Ed Cornwell, Logistics & Industrial Capital Markets Partner at Cushman & Wakefield, said: “Investor appetite remains strong with overseas investors accounting for 70% of all activity. In H1 2021, yields compressed by c.50 bps and we expect further inward yield movement during the second half of 2021. We estimate there is in excess of £20bn of capital wanting to invest into the sector. As a result, investors are seeking bigger lot sizes as well as looking at M&A opportunities.”

 

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