High rents pushing occupiers off prime locations

By Liza Helps Property Editor Logistics Matters

THE RENT affordability issue was raised during Collier’s annual Industrial & Logistics webinar held in October this year.

After discussing  investor appetite for assets located in prime markets, to the extent that they would prefer a poor asset in a prime location rather than the other way round, Colliers’ Capital Markets Director David Kos, said that for occupiers that was not necessarily the case especially in areas which had seen high rental growth in the last few years.

He said: “We are closely monitoring London and the South East markets given the question mark around affordability of rents, driven by an extraordinary rental growth in recent years. As a result, some occupiers are increasingly considering alternative locations further afield up the M1, M40, M4 and M3 corridors to find more value for money. These markets have benefited from this outward ripple effect from London, and we are experiencing record rents consistently being achieved.”

Tritax  Big Bix development director Charlie Withers who was also a panellist added: “From an occupier perspective location is important but there are other drivers behind their decision making in relation to power and people.

“Occupiers are slightly more prepared than investors to look at off-prime locations than they would have done previously. I would say that prime locations from an occupier perspective may have widened, and we’ve seen that through certain transactions recently.”

Considering occupier demand and future warehouse development UK Head of Industrial & Logistics Len Rosso added: “We believe that as the debt environment improves the build to suit market will start to pick up again next year, also as a consequence of reduced warehouse availability, because of the slow down in speculative development.”

The webinar concluded that that 2024 big box occupational activity is now back in line with the five-year pre-Covid average and take up is looking to surpass last year’s total of 24 million ft2. Colliers predicts that the speculative development slowdown will cause a pinch in supply next year, supporting sustained rental growth in excess of 4% across the UK on average until 2028.

With the expected reduction in borrowing costs during the next 12 months, the Colliers’ house view is forecasting that in a highly capitalised market, investors will increasingly be attracted by core and core-plus opportunities.

The webinar titled Creating Value in a Transforming Market featured a market presentation by UK Head of Industrial & Logistics Len Rosso and Head of Industrial Research Andrea Ferranti. The update was followed by a panel discussion featuring Charlie Withers, Development Director from Tritax Big Box REIT, Jason Pickering, Capital Deployment Director at Prologis and David Kos, Director in Colliers’ Capital Markets team.