The logistics market is now coming off its peak 2021 performance and entering a new phase of the cycle, according to the latest research from Gerald Eve.
Under offers remain high, but the market is entering a new period determined by higher costs, more fragile consumer sentiment and a drive for supply chain resilience. Some occupiers raised concerns over rental affordability and labour shortages, the firm said.
Its Q1 Prime Logistics research shows that occupier take-up of industrial and logistics space totalled 15.8m sq ft in the quarter, 36% down on the all-time record in Q4 but still 9% above the five-year average.
Retailers were the most active occupier segment, but an eclectic mix took space in Q1. This included dedicated internet retailers, occupiers linked to food manufacture and food retail, home retail and improvement and renewable energy-linked tenants.
The overall rate of availability fell sharply to a record low of 3.7%. Occupiers now have very few options of up-and-built stock to choose from, and the buildings that were brought to the market continued to attract significant interest. However, the addition of newly developed speculative or refurbished space edged up the new/modern availability rate to 1.3% in Q1.
Availability could rise further given the large volume of speculative space under construction, with more earmarked for development. The overall annual outlook for 2022 is for an increase in development completions, which will continue to attract occupiers and push up rents as developers look to pass on increased build costs.
However, the research also notes a large amount of land being readied for future logistics development, including former colliery, automotive and power station sites. At the same time, occupiers have become somewhat more circumspect about the economic outlook, especially those linked to the consumer sector.
Steve Sharman, partner and head of research at Gerald Eve, said: “When you take a step back and look at just how phenomenal the last two years have been for the logistics market, it’s hard to remember what it was like before the pandemic. The market remains incredibly strong on nearly all metrics, but our most recent data does suggest that we are now coming off peak 2021 performance and entering a new phase of the cycle.
“Demand is down on Q4, there has been a modest increase in new availability and the consumer outlook has softened on the back of the rising cost of living. Occupiers are battling cost increases across the board, and many may now be taking steps to protect margins at the expense of expansionary growth.”
Sharman said “resilience” was likely to be a watchword this year as occupiers look to increase the use of automation, nearshore supply chains and future-proof assets against ever-stricter ESG regulations.
“This, plus the structural shift online, will keep demand elevated and continue to push on rents, but the forecast for next year has been slightly reined in given the growing cost pressures on occupiers,” he said.