Demand for UK logistics space cooled in Q1 2023 as occupiers reconsidered their space requirements, according to new research from Gerald Eve.
The Q1 take-up figure of 11.7m sq ft was the lowest since pre-pandemic 2020. The Midlands was the major focus of occupier activity in Q1, accounting for 48% of all UK take-up.
Sustainable energy companies, housebuilding and medical-linked manufacturing were the main sources of demand for industrial space in Q1, along with some high street retailers switching to e-commerce.
The overall UK availability rate stood at 4.7% in Q1 – below the long term average for the sector – and prime rents grew by 3.3% across the UK, driven by above average growth in the Midlands.
Jon Ryan-Gill, partner at Gerald Eve, said: “Occupiers are adapting to the current economic conditions, particularly the squeeze on household incomes and the impact of rising interest rates and energy prices, and cutting their cloth accordingly.
“It’s encouraging that such a diverse range of occupiers continue to choose the Midlands as a location for business operations. The spate of recent development has meant that Midlands logistics stock is now more compliant with EPC-related regulation than most UK regions. This is a big plus for occupiers given broad-based demand for energy efficient accommodation and in turn will attract investors given the reduced regulatory risk.”
Gerald Eve’s research found investor sentiment and pricing improved in Q1. Average prime yields moved in 25bps and “a new pricing equilibrium is being established, with good quality assets with strong ESG credentials proving most liquid, albeit in short supply”.
Nick Ogden, partner at Gerald Eve, said: “The relatively liquid UK prime logistics market arguably overcorrected last year and we are now seeing strong levels of interest on quality assets and multiple rounds of bidding. UK institutions have returned to the market and investor appetite has broadened up the asset quality risk curve.
“Current investor interest remains most highly focused on assets with the best ESG credentials, but this kind of investment stock remains in short supply. Pricing has regained some of the lost ground from last year, but the higher-for-longer interest rate environment puts a floor on near-term property yields.”
