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Warehouse shortage heralds rent rise

16 May 2024

With just 20 warehouses under construction across the UK property agency Colliers is predicting further rent rises.

By Liza Helps Property Editor Logistics Matters

COLLIERS IS tracking just less than 8 million ft2 of available logistics space under construction or due to break ground soon, with only 16 units sized between 100,000-200,000 ft2 and four mega sheds of 500,000+ ft2.

Colliers Head of Industrial & Logistics Research Andrea Ferranti noted that occupier demand was sustained in the first quarter of 2024, with 5.8 million ft2 of warehouse space already taken up and there is strong evidence of continuing demand resilience, meaning there will be pressure on new supply during the next 12 months which will sustain rental growth in prime locations.

He said: “Although investors’ conviction towards the industrial sector is strong, elevated borrowing costs continue to challenge financial appraisals, making it difficult for speculative funding deals. Construction costs have stabilised, providing some certainty on that front, however we do not foresee a generalised uptick in speculative development until there is clear evidence that borrowing rates are reducing.

“With occupiers increasingly searching energy-efficient space to future-proof their property portfolios for changes in legislation, there will be a shortage of vacant grade A space available, meaning that rents will continue to push on.”

The latest MSCI data shows a continuing, yet slower, trend in rental growth increasing an average of 1.1% across the UK in the first quarter of 2024. Although this is half the growth rate witnessed in Q4 2023, in London there was slightly stronger growth with assets achieving a 1.5% growth in Q1, albeit still down from 2.4% in Q4 2023. This year Colliers is forecasting an average industrial rental growth of 3.7%.

Colliers Head of the Industrial & Logisics Len Rosso, said: “While occupiers have understandably been more cost-conscious of late, we are aware of several large warehouses under offer by well-known household names, which will support market activity over the next few months. We anticipate that 2024’s occupier demand will mirror the level of activity seen last year, as occupiers continue to optimise their logistics networks. 

“Whereas in 2025, once we see interest rates starting to decrease, and the elections conclude providing political certainty, we will witness consumer confidence returning, which will release the pent-up demand from occupiers and provide reassurance to investors and developers to start the next wave of projects.”

Recent big sheds deals saw Yusen take a million ft2 plus warehouse at SEGRO’s SLP Northampton scheme in the East Midlands.