Editors Note: We’ve updated this article to include new information regarding Yorkshire, the North East and North West.
New research from the global commercial property firm, Cushman & Wakefield has revealed that the demand for distribution space reached record levels in the third quarter of 2020.
A total of 16 million sq ft of space was transacted in Q3, nearly double the ten-year average for Q3 of 8 million sq ft as retailers and third-party logistics expanded their supply chains in response to the ongoing pandemic.
Simon Lloyd (pictured right), Head of Logistics and Industrial at Cushman & Wakefield in the Midlands, said: “The market trends accelerated by the pandemic continued to drive demand during Q3, and the Midlands region saw some 45% of the UK’s total take-up, with both the East and West Midlands performing well. Robust take-up is fast eroding existing supply, with some regions and sub-markets now facing a shortage of suitable accommodation across certain size bands. Availability levels across the Midlands have decreased by over 15%, and speculative development has slowed, which means this imbalance could persist. There are signs that prime rent growth could return as a result, particularly for mid-box units.”
The figures reported by Cushman & Wakefield indicate a further acceleration in demand for logistics and distribution space to keep pace with the boom in e-commerce.
In total, e-commerce has accounted for 40% of take-up so far this year – an all-time high – with related sectors including meal kit operators, parcel delivery and fulfilment companies also expanding.
Reflecting the ongoing pandemic response, several short-term requirements have developed into long-term commitments during the quarter, including Supply Chain Co-Ordination (NHS/Clipper Logistics) leasing 536,991 sq ft at DIRFT in Northampton on a 5-year term for PPE storage.
The data also shows that take-up for the first nine months of the year reached 35.5 million with a further 11.5 million sq ft currently under offer. The record-breaking figures mean that take-up has already outstripped the full-year take-up for 2019 of 33.2 million sq ft with 2020 on course to set a record for take-up.
Ned Jones, Capital Markets Partner at Cushman & Wakefield in Birmingham, added: “Despite the challenging economic climate, there remains a significant pool of capital looking to increase exposure to the industrial sector, which has been one of the most resilient UK commercial property sectors so far. Competition for prime assets is very healthy and we are seeing this firsthand on the various sale mandates we have locally with over £50m of stock that we have recently put to the market.”
During Q3, The online retailer, Amazon, continued to expand, taking 2.3 million sq ft at Panattoni Park in Swindon, which was the largest deal of the quarter. In addition, the retailer’s transactions now account for one-third of all take-up this year so far, acquiring 11.5 million sq ft in total.
Record take-up levels, combined with a slowdown in speculative development, meant there was a 11% drop in supply during the quarter with total availability falling to 66 million sq ft.
Supply is now below its historical average across all regions bar the Midlands and the South East, with the North West recording the sharpest year-on-year decline in availability (-39%)
In the North East, there has been a strong demand for space but there is a noticeable lack of available stock which Cushman & Wakefield predict could hamper Q4 take-up.
Richard Scott, Partner, Logistics & Industrial at Cushman & Wakefield in Newcastle comments: “Q3 2020 take-up figures for the North East reached 515,000 sq ft across five transactions and underlines the continuing strong demand for industrial/logistics space in the region. However supply is now at critical levels and we don’t see this changing in the short-term so this may have an impact on the figures for Q4 2020 and into 2021.”
In Yorkshire, there was a record-breaking level of take-up in Q3 as figures reached 800,836 sq ft – taking the total take-up for the first three quarters of 2020 to 4.97m sq ft.
Dave Robinson, Partner, Logistics & Industrial at Cushman & Wakefield in Leeds comments: “Take-up in Yorkshire for the first three quarters of the year reached almost 5 million sq ft which is already the highest take-up year on record and well above the long-term average. Whilst take-up demand has been driven by e-commerce, with Amazon continuing to take significant space, there is a healthy mix of occupier types.
“We see continued demand and with limited new product coming to the market, we expect to see a supply-demand imbalance for the foreseeable future. As well as standing stock there is also a lack of deliverable sites coming forward and we expect to see occupiers struggle to satisfy demand in several
Meanwhile, in the North West region, take-up reached 1.41 million sq ft in Q3 taking the total take-up figures for the first three-quarters of 2020 to 3.51 million sq ft (up 55% on the same period last year).
Rob Taylor, Partner, Logistics & Industrial at Cushman & Wakefield in Manchester, comments: “There was another strong quarter for take-up in the North West with the region continuing to demonstrate strength and resilience. We are now seeing deals being agreed at rental levels of £7.00 / sq ft and beyond in the 100,000 sq ft plus market and as these complete over the coming months we anticipate continued rental growth across the region. Recent developer demand for good quality, well-located sites in the region shows the commitment to the sector and with further speculative development across most size ranges mooted for the region, the future in this region looks strong.
“It looks likely, notwithstanding the fear of a ‘second spike’, that demand for online retail will remain robust and that consumer habits have changed within a much wider demographic than before, particularly amongst the older generation. As they have been forced to embrace such behaviours, they have realised the benefits of shopping online and the retention of these consumers looks high. This will only serve to increase demand for warehouse space, last-mile delivery centres and smaller fulfilment centres close to large populations.”
Commenting on what lies ahead for the UK as a whole, Bruno Berretta, Associate Director, UK Industrial & Logistics Research and Insight at Cushman & Wakefield, said: “Whilst the pandemic has taken centre stage over the last few months, investors and occupiers are now starting to turn their attention towards Brexit. Although the outcome of ongoing negotiations is uncertain, and some sectors such as manufacturing are arguably more vulnerable to a ‘hard’ Brexit than others, the market is about to enter some potentially disruptive months in good shape. Demand has proved resilient and supply is in line with its long-term average and 30% below its post-GFC peak.”