Property boom - a lawyer’s viewpoint

IT IS pretty obvious to all that warehouse space is at a premium. But, it’s one thing to read the figures in reports. In my role, I have been party to deals that bring this issue into very sharp relief. After over 20 turns of a lease, we’ve seen the papers were pulled by the landlord as, despite a very aggressive timescale to go from heads of terms to completion, the landlord simply got a better deal. 

In addition, at a recent conference there was hushed talk from agents of day 1 rent reviews being introduced in newbuild sites given the state of the market. 

In nearly 25 years of acting for landlords and tenants of sheds, shops and offices of different shapes and sizes I thought, when producing a report on the supply chain in the logistics sector in 2019, that the pace of change had never been greater than in the preceding couple of years.

How wrong I was. In the past 24 months the well-rehearsed issues of Covid, Brexit and driver shortages have done nothing to slow the pace of activity and highlight the importance of the sector. 

During the pandemic, online purchases accounted for a greater part of our general spend (with online sales accounting for a record 29.1% of all goods bought in 2021 according to ONS figures). This has meant some preconceptions about the ceiling take up for certain goods (grocery in particular) had to be revisited. Necessity was the mother of invention and we all had to do things differently. In 2019 I was writing reports about companies of all sizes investing in tech and having the R&D budgets to do so but for developers, occupiers and 3PLs of all shapes and sizes just getting the day job done has become harder than ever. 

The ability of the sector to do that depends upon the space being available (and a suitable space at that). Some figures from the 2022 industrial and logistics viewpoint from Colliers make stark reading: there was a record low supply of 18.1million square foot (units of 100,000 square foot plus); there was a new record take up of 50.7 million square foot; and unsurprisingly there was an average rental increase of 8.7% (MSCI).

It doesn’t stop there. It’s anticipated that prime warehouse rents will rise by 12.5% in 2022 and 8.5% in 2023. 

This increasing climate for more bespoke facilities also impacts on capital expenditure and in turn pushes lease terms out – they are getting longer as occupiers look to secure sites.

Whether further macro-economic events, intervention from the Bank of England, inflationary pressures or black swans do anything to dull the economy remains to be seen. However, no matter what, given how consumers acquire goods has fundamentally changed, retailers have to service that. The customer is king and to gain competitive advantage, delivery times need to be shorter and shorter. Other retailers can’t afford to be left behind which in turn puts pressure on their own supply chain. While it will be very interesting to see how this supply and demand will play out in the logistics sector and its property requirements, on a positive note these challenges are being addressed with enthusiasm, hard work and increasing ingenuity and, dare I say, it is a sector which is finally getting the publicity that it deserves. 

Matthew Williamson, Partner, Weightmans LLP

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