Prime warehouse rents rise continues
09 February 2024
Prime warehouse rents rose 8% year-on-year in 2023 according to the latest research by real estate advisor Colliers.
By Liza Helps Property Editor Logistics Matters
PRIME RENTS across the UK for large distribution warehouses (100,000+ sq ft) increased to £11 per ft2, up 8%. Meanwhile mid-box and multi-let units across the UK reached £14.50 per ft2, up 6.3%.
Surprisingly these rent rises came about despite a slow-down in take-up and an increase in warehouse supply. Take-up of large warehouses exceeding 100,000 ft2 in 2023 totalled 24 million ft2 (5.7 million ft2 was taken up in Q4 alone) a 36% decline, and a 14% decrease on the 10-year pre-pandemic average (2010-2019).
Supply reached 38.5 million ft2 (from a low of 20 million ft2 in 2022) however, this is still below the pre-pandemic ten-year annual average supply rate of 45.2 million ft2.
Colliers Head of Industrial & Logistics Len Rosso, explained: “2023 was a difficult market compared to the boom we’ve seen in recent years, however despite these tricky conditions the sustained occupier demand has resulted in a continuation of rental growth and a rise in land values in core locations.
“While investors and developers have worked hard to deliver more quality prime warehouse space, following the glut of take-up over the pandemic period, supply remains constrained in most core markets due to the increased costs of construction and higher borrowing costs caused by inflation.
“This combination of difficulties for the market is what is spurring on these continued rental rises, which we anticipate will also continue during 2024 as we are witnessing a slow-down in the current development pipeline.”
In recent months only a handful of new units broke ground according to Colliers, although there is currently 9.7 million ft2 of speculative space under construction, it is anticipated that prime supply constraints will start to be seen again by the end of the year.
Following a drop in land values at the end of 2022 to an average of £1.5 million an acre, during 2023 they rose by around 20 per cent, with growth driven by the strong performance in the prime markets of west and north west London.
“Investors and developers are focusing their capital on well-located prime locations,” Colliers Head of Industrial & Logistics Research Andrea Ferranti, said. “We’re continuing to see strong interest in the North West, core Midlands and west and north west London market. These areas exhibit a supply shortage with a compelling rental growth story, so the opportunity to secure land is coming at a premium.”
In terms of occupier demand , Rosso said: ‘“We think that 2024 will be another stop-start year of occupational demand. Those who have to move because of lease events or contract expansions will be in the market, but until we see stability around household spending and credit conditions, it’s unlikely that many occupiers will consider growth plans, and by the end of the year there will be a lack of warehouse options once again – resulting in another year of continued rental growth.”