Vacancy rates for UK industrial and logistics property hit an historic low of 3.1% in Q2-Q3 this year, according to the latest data from Colliers. The lack of supply drove UK annual rental growth to a record-high of 12.4%.
Colliers’ research, which track units of 100,000 sq ft and over, highlighted a major supply demand imbalance, with developers struggling to bring new sites forward fast enough to address the issue.
Yorkshire and Scotland have the lowest UK vacancy rate (1.2%), followed by the South West (2.1%), West Midlands (2.3%), East Midlands (3.3%), North West (3.5%), London (4.2%). The vacancy rate in South East/Eastern and the North East stood at 4.8%.
Colliers’ forecasts show the industrial sector’s leasing market is cooling and delivering an average annual rental growth of 4.7% to 2026. Despite a record 18m sq ft of space being delivered speculatively in 2022, supply in Q3 remained relatively unchanged at 18m sq ft year-on-year.
The area with the highest amount of planned speculative space is in the South East/Eastern (4.2m sq ft), followed by Yorkshire (4m sq ft), East Midlands (2.4m sq ft), the South West (2.1m sq ft), the North West (1.3m sq ft), London (1m sq ft), West Midlands (611,000 sq ft) and Scotland, where there is only one unit of 126,960 sq ft.
Len Rosso, head of industrial and logistics at Colliers, said: “There is currently 16.2 million sq ft of speculative supply either under construction or where developers have announced construction works to start in early-2023, however, construction plans on some of these schemes may be revisited due to weaker land and capital values, which are challenging development appraisals.
“This figure may look high when studied in isolation, but when compared in the context of five-year regional annual average take-ups it is in line with expectations. However, if we consider that this new space is skewed slightly as 4m sq ft is being delivered through six units equal or larger than 500,000 sq ft, it becomes clear that investors are remaining relatively cautious in the wake of economic forecasts.”
Developers are struggling to deliver new industrial and logistics space due to the lack of available development land. In London there is only 954,000 sq ft of available design-and-build space resulting in 2.5 months of supply.
Andrea Ferranti, Colliers’ head of industrial and logistics research, said: “Developers are struggling to bring sites forward fast enough to maintain a healthy supply demand balance. Given the economic headwinds, it is plausible to expect a slowdown in occupational demand in 2023. However, the relative lack of supply will sustain rental growth over the foreseeable future with average annual rental growth in the industrial sector forecasted to outperform other commercial real estate sectors to 2026.”
