Funding will be needed for another 12M SF of last-mile logistics space on top of existing demand, thanks to e-commerce growth way ahead of expectations.

Thanks to skyrocketing returns, the money won’t be hard to find.

Knight Frank calculated that e-commerce sales 3% above expectations by 2025 will generate another £37B worth of online sales. This in turn will drive demand for a further 12M SF of last-mile urban logistics space by 2025.

The revised projection follows increasingly confident forecasts that e-commerce sales will amount to 30% of all retail by 2025, rather than the 27% thought earlier this year.

The logistics sector has already sucked in a record £13B investment in 2021 — but it is clear more will now be required.

Total returns for 2021 forecast to reach 18.5%, roughly double the 9.7% reported in 2020, Knight Frank said. In the south east it will be higher still.

A new focus on supply chain resilience is helping to stimulate demand. “The Suez Canal incident in March and the more recent HGV driver shortages have further underscored the importance of supply chain resilience and suppliers are looking to increase their stock holdings, and develop shorter, more dependable supply chains to ensure their operations can withstand any further shocks,” Knight Frank Head of Logistics Charles Binks said.

The firm’s analysis of hub-and-spoke networks servicing online retail found that 23.5% of space is allocated to 'spoke' facilities that are servicing last-mile deliveries, and demand for these facilities is expected to grow as online shoppers demand faster delivery times, requiring logistics operators to hold stock closer to consumers.

Vacancy rates for potential last-mile logistics units are low across the UK. The vacancy rate for units under 100K SF in London is 3.1% and in Manchester and Birmingham is less than 1%.