The UK Warehouse Development Pipeline Has Doubled But It Is Still Not Enough
Developers have doubled the pace of warehouse development since the start of the coronavirus pandemic, but are still not producing enough floorspace.
Data from Knight Frank showed that 40M SF of new UK warehouse space is due for completion in 2021. This compares with 20M SF in 2020.
However, even a doubling in completions is not enough to meet additional online sales growth.
Hear from Bisnow's expert speakers about the creative pathways to deliver more warehouse floorspace, and meet increased investor appetite, at the Bisnow Year of Industrial Real Estate event on Tuesday 13 April.
Online sales rose £34B in 2020, compared to 2019, and if every £1B of extra online sales requires 1.36M SF of new warehouse floorspace, as Knight Frank argued, that ought to mean 46M SF. This suggests the 2021 development pipeline will deliver 6M SF short of requirements.
The next four years are expected to see a further £41B of online sales growth, representing a further 56M SF of new UK warehouse floorspace.
Much of the new space under construction is already committed, with retailers and distribution companies opting to satisfy their requirements through build-to-suit solutions.
The supply of vacant warehousing remains tight across the UK, with 46M SF currently available, representing 10 months’ supply at current take-up levels. However, Knight Frank said most of that space is in secondhand units that either do not have the right specification or are in the wrong location.
“Take-up over the past year has reduced the level of availability and Covid-19 has hampered construction, slowing the delivery of new stock to the market. Supply, particularly of high-quality space, has diminished,” Knight Frank Head of Industrial and Logistics Charles Binks said.
“The level of occupier enquiries remains strong and many of the requirements logged last year have not been met. However, the availability of land or suitable sites remains a key constraint.”
Rental growth is the inevitable consequence, Knight Frank said. The strongest annual rental growth is expected in London (3.2%), followed by the south east (2.7%) and eastern (2.7%) regions. Returns for UK industrial and logistics over the next five years are expected to average 7% per annum, outpacing those on offer in other real estate sectors.