Lockton Property Issues Seminar – overview of the UK industrials and logistics market

On Wednesday 22 February 2023, Commercial Real Estate Senior Associate Paul Grayson attended the Lockton Property Issues Seminar at Lockton’s offices at The St Botolph Building, 138 Houndsditch, London.

As part of the Property Issues Seminar, Kevin Mofid of Savills provided an overview of the UK Industrials and logistics market. Paul shares his key takeaways from this overview as follows:

• Logistics take up remains high – 2022 was the third highest year in history for logistics space take up (with 47 million square feet of space been taken up). 2021 was the highest ever year, closely followed by 2020 (noting that in both 2020 and 2021, take up exceeded 50 million square feet). 2022 may have represented a seemingly sharp drop in take up, however this is only when comparing 2022 with the “Covid amplification years” of 2020 and 2021;
• Regions are generally outperforming the long term annual average in terms of uptake – when looking at the data from 2022 as against the long term annual average for uptake, most regions are outperforming the long term annual average. For example:
• The East Midlands is 40% above the long term annual average;
• Yorkshire is 75% above the long term annual average; and
• The North West is 69% above the long term annual average.

In contrast, the South East is currently 17% below the long term annual average. This perhaps reflects the lack of availability of stock in this region, as well as sustained rental growth;

• A potential opportunity for second hand stock – in 2022, only 22% of take up was for second hand stock. In comparison, 50% of take up was for “build to suit” buildings. This perhaps reflects a flight to quality, however due to the rising cost of debt, build to suit schemes are becoming harder to fund. This may lead to an increase in demand for existing buildings;
• The EPC timebomb for second hand stock – in contrast, a number of existing warehouse buildings risk becoming stranded assets due to the upcoming changes to the minimum standards required by the MEES Regulations. 90% of warehouses in the UK below 100,000 square feet currently have an EPC of C or below;
• The supply chain faces multiple challenges – the supply chain faces numerous global challenges in the future. For example:
• Chinese labour costs have risen by 250% since China joined the WTO in 2001;
• One quarter of global trade is carried out with high-risk countries; and
• International trade accounts for 20 – 30% of global emissions.
• Manufacturing uses on the rise – 2022 saw the highest amount of warehouse space ever taken up in relation to manufacturing uses such as life science R&D, automotive production and battery production; and
• The logistics sector will always be in demand as it is a necessity – despite challenging economic conditions, the logistics sector will continue to be the backbone of the country. Warehouses should be viewed as places of national infrastructure which are absolutely necessary in order to keep the country moving.