Take-up of UK warehouse space is expected to fall to pre-pandemic levels this year, according to the latest research from Knight Frank.
The company anticipates annual take-up in 2023 will hit 36m sq ft (for units larger than 50,000 sq ft) compared with the 46m sq ft recorded last year. The pre-pandemic five-year average was 35m sq ft.
Knight Frank said the anticipated fall in activity was due to the slowdown in the expansion plans of online retailers and distribution firms who “scaled up their operations at unprecedented levels” between 2020 and 2022 to meet surging e-commerce growth.
In 2022, online retailers accounted for just 20% of warehouse take-up compared with 36% the previous year – an all-time high.
Manufacturers accounted for a quarter of all take-up last year and this has continued into 2023 with manufacturing firms accounting for 26% of the 6.9m sq ft transacted in Q1.
Around 33m sq ft of space has already completed or is expected to complete in 2023, but Knight Frank said new development activity is falling due to a combination of “inflated build and financing costs and softer exit yields”. So far this year there have only been four new development starts compared with 23 in the same period last year, “pointing to limited availability towards the end of 2023 and into 2024”.
Claire Williams, industrial and logistics research lead at Knight Frank, said: “We believe the temporary pull back amongst online retailers will be cushioned by an increasingly diverse range of occupiers, including food producers, manufacturing firms, data centres and film studios.
“The market has already witnessed this over the past year, with more companies reshoring to ensure compliance with post-Brexit legislation and avoid costly tariffs or disruption. Manufacturing and distribution companies are also localising supply chains, to meet sustainability targets and transition away from a dependence on low cost labour toward more capital-intensive, automated facilities.”
