We (Jonathan Farrell and Richard Wilkin) recently attended (virtually) Colliers’ review of how the Industrial and Logistics sector has fared over the latest quarter. Our key takeaways on the latest state of the industry and the challenges it faces are below.
Increased trends in online shopping as observed during Property Week’s recent showcase have continued to create an insatiable demand for logistics space.
The panel’s and attendees’ view was that the public’s increased dependence on online trading is going to remain the status quo for the foreseeable future, despite increased relaxation of Covid restrictions, and will continue to drive increased demand.
Given recent increases in construction costs, developers are looking at costs closely. The panel’s view was that though there would be increased difficulty in obtaining materials over the next 24 months and some marginal delays, the real effects would come in the form of increased costs, higher rents and sharper yields. The panel came to a view that the current "eye-watering" costs of construction, such as for steel, will ease over the next 12 to 24 months.
Good news for the industry has meant it is a difficult time to be an occupier. Increased competition for new high quality industrial space has driven significant increases in rents. Rents for industrial spaces in London have increased by 6.8% in the last 12 months and the trend is expected to continue while the demand for space absorbs the limited levels of supply.
Being one of (if not the only) sector with guaranteed rental growth, the industrial and logistics market has caught the eyes of investors. The capital investment in the sector for the first three quarters of 2021 already outstrips all that within the whole year of 2020, and prices have increased dramatically as a result.
Rates of change
The spectre of reassessment of business rates continues to cast a shadow. While much is uncertain, the panel seemed hopeful there would be opportunities for occupiers to seek to mitigate an increase. Potential glimmers of light may lie in reassessing how properties are used and introducing more floor space by way of mezzanines. It is to be seen how plant is to be valued given increased specialisation of equipment such as cold stores and automated shipping plant. Watch this space!
If you are an investor, developer or occupier of industrial and logistics space and have any queries or would like to discuss your requirements, including for acquisition, disposal or development, please get in touch with one of our team.
To watch a full recording of the Colliers webinar please click here.