Rental growth set to exceed forecasts

With 24.1m sq ft of warehouse space transacted at the halfway point of 2021 – a new H1 record – there has been a sharp decline in vacancy rates across most UK regions, with the national average now standing at just 4.8%.

“As a result of these supply-and-demand dynamics, the latest rental growth forecasts from RealFor suggest the wider logistics market should expect to see growth of 3.6% per annum until 2025,” says Will Laing, industrial and logistics research analyst at Savills.

“However, what this forecast fails to take into consideration is more localised market conditions. Given that vacancy levels have hit record lows in many regions, construction materials are in short supply and occupier demand shows no signs of slowing, we anticipate that actual rental growth is likely to considerably exceed these predictions.”

Laing cites the example of Yorkshire and the North East, which in the past year alone have seen prime quoting rents increase by more than 16%.

“Take-up in the region has reached 7.36m sq ft to date in 2021, exceeding the annual average, leaving just 113,000 sq ft of grade-A space available,” adds Laing. “This is likely to accelerate rental growth in the next two years far beyond the 3.59% growth anticipated by RealFor. Likewise in London and the South East, Scotland and the East Midlands, which have seen growth of 14%, 13% and 11% respectively from H1 2020 to H1 2021.”

Due to the sheer shortage of supply and increased competition for space, Laing is confident that occupiers will experience high rental growth in the coming months.

“While [this is] positive for landlords and developers, those looking for space will need to search further afield to secure preferable rents and lease terms,” says Laing.