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Warehouse rents rise despite demand slow down

31 July 2023

According to real estate analytics company MSCI data, average warehouse rents rose 1.8% in the second quarter of the year and have increased 3.7% in the first six months with property consultant Colliers predicting a 5% increase in rents for 2023 despite a general slowdown in occupier demand.

By Liza helps, Property Editor Logistics Matters

RESEARCH CARRIED out by a variety of property analysts and consultants point to a general slowdown in demand with Gerald Eve research reporting demand was down 16% as occupiers adjust to economic conditions.

Colliers head of Industrial & Logistics Len Rosso, said: “While there’s no denying that due to economic uncertainties, especially the continued interest rate rises, that the industrial market is slower at the moment, there are still strong fundamentals which are resulting in rents continuing to rise.”

Firstly, the amount of speculative development being started, and being brought to market is set to slow.Colliers’ head of Industrial & Logistics research, Andrea Ferranti, said: “Watching the moves of investors and developers we can see that speculative construction starts are slowing dramatically, as everyone is mindful of several factors such as; the current cost dynamics of construction; uncertainty around exit yields; elevated borrowing costs; as well as occupier demand slow down. While there’s some projects currently under construction, we can expect to see a peak in space availability in the next six to nine months, before becoming more constrained again in 2024 – which will also mean that rents continue to rise into next year.”

In addition, there is growing demand from occupiers to upgrade their facilities Gerald Eve partner Josh Pater, said: “Occupiers continue to look for ways to make short-term operational efficiencies and bolster supply-chain resilience while also seeking to address their net-zero sustainability ambitions. These ambitions have the potential to generate demand for new multi-modal accommodation with the highest Energy Performance Certificate (EPC) credentials, and Q3 has seen a relatively positive start with a handful of large lettings.”

If that were not enough reasons for rent levels to continue to rise then there is the fact that rise in ecommerce is not going away. Pater said: “E-commerce, more generally, remains a long-term structural driver of demand for logistics space, and there are others too that will continue to make an important contribution, such as green energy production and EVs, companies nearshoring operations to improve supply-chain resilience and even high street retailers looking to upgrade to more sustainable accommodation or increase their e-commerce offering. On balance, once the dust settles, post-pandemic demand is still likely to be around 10% above pre-pandemic.”