This sector is trapped in a vicious circle. We’ve been seeing for years that logistics supply is not keeping pace with demand.
The pandemic has accelerated trends such as online shopping, further driving up demand. And development has become more difficult amid supply chain disruption and a shortage of labour and building materials.
We’re therefore likely to see a continuation of a lack of vacant space for many years to come, which will ultimately drive up rents in two key ways: first, higher costs will deter development, meaning available space will continue to be squeezed and rents will inflate; second, those developers that do decide to build will need to hike rents to pay for construction. This is due to play out over the next couple of years – and it may mean that rents become unmanageable for some tenants.
This may result in tenants being displaced to cheaper locations. We are also seeing an increasing amount of regional businesses that would have traditionally split their operational activities from their office functions now combining them into new warehouses, given the improved quality of these assets. This ‘co-location’ thereby significantly reduces their office rents, which helps to balance the increasing cost of renting their industrial space.
Nick Berry is a partner at Clearbell
I&L space shortage points to an uncertain future
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Breaking the vicious circle of logistics supply