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A cacophony of issues

12 July 2023

After a long period of steady rises, industrial land values are falling. What impact will this have on the outlook for big logistics sheds? Logistics Matters editor Simon Duddy reports.

INDUSTRIAL LAND values contracted by 47.4% in the six months to December 2022, due to inflation and increased borrowing costs, according to analysis from commercial property agent Colliers.

The average land value in the UK dropped down to £1.5 million an acre in December 2022, from £2.86 million acre in June 2022 due to a slow down in the market following the shift in the UK’s economic outlook. Yields moved out by more than 150bps as the Bank of England restricted money supply by increasing the base rate, hence driving the borrowing cost higher, while inflation continued to push up development and construction costs.

Colliers head of Industrial research Andrea Ferranti, explains: “We’ve seen a significant shift in land values over the last six months or so, caused by a cacophony of issues coming together at once: strong inflation, rising interest rates and the consequent slowing economic activity. While it was generally accepted that the market was due a correction, the speed at which this occurred was widely unexpected. We suggest that values are about to bottom out, and providing we see strong signs of inflationary pressures abating this year, borrowing costs will ease.”

While land values have reduced, prime rents have continued to grow, says Colliers, although at a slower pace than during 2021, according to its latest UK Industrial Rents Map. The average prime headline rent for large distribution warehouses (100,000 sq ft+) in the UK rose by 3.4% over the six-month period to end-December 2022 and 10.5% (year-on-year) to £10.2 psf. 

Colliers head of Industrial & Logistics Len Rosso, says: “There’s been continued solid rental growth for the sector over the last six months despite the disturbances to the country’s economics. Demand has continued for space and with availability still fairly tight, rental growth is not forecasted to turn negative.

“The challenge for the markets is going to be around the supply issue, as only a small pool of investors are going to have the capacity to speculatively forward fund or develop new supply under the current conditions. The cash-rich, long-term investors however can strike now while the values are down, taking advantage of a less crowded market.”

There was a drop in overall warehouse demand from the summer. Despite this, 2022 was still one of the strongest years on record, showing just what an impact the pandemic had in heating (arguably over-heating) the market.

Data from real estate services firm Cushman & Wakefield showed occupant take-up for UK logistics and industrial space (units of 50,000 sq ft or more) reached 54.5 million sq ft during 2022, down from a record of 70.6 million sq ft in 2021. This is still ahead of the pre-pandemic long term average of 33 million sq ft.

Savills made some interesting observations in its annual Big Sheds Briefing, which was released in January, and which suggest that demand for modern, high-spec space remains high.

Savills national head of industrial & logistics Richard Sullivan, said: “Over the year we have seen 23.9m sq ft of build-to-suit transactions, the highest amount ever recorded, which equates to 50% of the market. At 13.6m sq ft, speculative take-up accounted for 28% of the market, the highest level we have ever recorded. Demonstrating how in demand modern buildings are, 50% of all speculative take-up occurred prior to the building reaching practical completion, meaning that the average void for speculatively constructed units in 2022 was just one month.”

In terms of supply and pipeline, Richard adds: “Over the last 12 months, supply has trended upwards from historical lows and now stands at 25.5m sq ft, reflecting a vacancy rate of 3.94%. The level of Grade A supply continues to trend upward as speculative units complete and now stands at 11.6m sq ft. With 20.19m sq ft of speculative units due for delivery in 2023 and into 2024, it is likely that vacancy and total supply will trend upwards to recent medium-term averages unless we see developers re-evaluate previously announced schemes.”


As the pandemic induced eComm boom eased, so did eComm’s thirst for warehousing, with online retailers taking just 6.6m sq ft of space in 2022, the lowest level since 2017, according to Savills.

Traditional retailers, on the other hand, took 9.3m sq ft of space - the highest level since 2016. The 3PL sector took 14.8m sq ft of new space, which at 30% of the market set a new record in the process. 

What’s more, adds Savills, 86% of these units were considered Grade A, against a long-term average of 60% highlighting that, more than ever, 3PLs need high-quality space to provide better staff welfare and ESG-compliant facilities in order to retain and win key client contracts.

Cushman & Wakefield’s data showed manufacturing space grew by 30% on 2021 levels, a result of manufacturers undertaking nearshoring and reshoring initiatives, it said. 

Savills adds that it expects to see a fall in the level of BTS take-up, given continued uncertainty in capital markets, as these could become harder to forward fund. 

“The challenge for the markets is going to be around the supply issue, as only a small pool of investors are going to have the capacity to speculatively forward fund or develop new supply under the current conditions.”

The firm says: “This should translate into higher take-up, proportionally, of existing space. Given that there is close to 21m sq ft and over 100 units due to complete into 2023 this is arguably good news for developers with units due to complete in the next 12 months.

“It is likely that 2023 will see significantly fewer speculative announcements meaning that the level of Grade A supply, while initially rising in 2023, will then start to fall into 2024.”

One example of the very significant developments in the pipeline, is SEGRO’s Logistics Park Northampton (SLPN).

SLPN is set to deliver up to 5 million sq ft of space as well as a 35-acre rail freight terminal. SEGRO’s primary contractor Winvic Construction is carrying out engineering works at the site, prior to the build of seven big sheds.

In the light of clients expressing a strong preference for environmentally-friendly Grade A space, it is interesting to note that SEGRO says the development will be its first UK big-box logistics park to achieve net-zero carbon in the construction of all the units and supporting infrastructure.

“It is likely that 2023 will see significantly fewer speculative announcements meaning that the level of Grade A supply, while initially rising in 2023, will then start to fall into 2024.”

Carbon-saving Initiatives include the deployment of recycled milk bottles for the site’s drainage system, with 1,108,430 used to date, achieving a 90% carbon saving. 

Salvaged materials, including brick, metals, broken concrete and wood are also being utilised across the development. All materials – almost five million cubic metres - have been retained on site for landscaping bunds which has resulted in a saving of 7,978 tonnes of carbon.

SEGRO national logistics managing director Andrew Pilsworth, says: “Rapid advances in construction techniques and building design are enabling developers to deliver warehouse units more sustainably, but SEGRO Logistics Park Northampton will be the first time net-zero is achieved across an entire vast industrial site, including the delivery of all on-site and off-site supporting infrastructure.

“These developments are vital cogs in domestic and global supply chains, and it is critical we can deliver them to meet our customers’ requirements for net-zero carbon warehousing and help the UK transition to a greener economy.”

Another example is Goodman’s Centrum 93, a 93,000 sq ft shed at Centrum Logistics Park in Burton-upon-Trent. Centrum 93 was built to a Grade A specification, with 1MVA of power capable of running investments in technology and automation, a 10m clear internal height and high-quality office space.
Achieving an A-rated energy performance certification (EPC), the property features a solar PV system of 100kWp, LED lighting, and electric vehicle charging points and infrastructure.

To conclude, the volatility in the economy is leading to a very mixed picture for big sheds. The eComm boom and a very long run of low interest rates has led to significant spend on new warehouse property, but the slowdown in the economy, and the shock to the system brought by rising interest rates, has led to a sharp decrease in new investment. Arguably this will be felt most in 18 months time.