The property industry has endured a gruelling 2020. The hospitality and retail sectors have taken a battering as operators were forced to close for months on end due to Covid-19 pandemic restrictions. And millions of square feet of office space has lain empty as companies ordered their workforce to work from home.
However, one sector that has not only survived but seemingly thrived during the pandemic and ensuing recession is industrial and logistics.
This year has seen the sector’s highest-ever recorded take-up (46.8msq ft) and the UK’s biggest-ever warehouse investment deal with Blackstone paying £473m for Prologis’ Platform portfolio in October.
The industrial and logistics sector appears to be in rude health and the future outlook looks pretty rosy as well judging by the findings of Property Week, Savills and Tritax Symmetry’s fourth annual Industrial and Logistics Census, in association with Analytiqa.
The census canvassed the opinion of industrial and logistics occupiers, developers, land owners, investors, asset managers, advisers/consultants and agents to create a rounded picture of the current state of the market; and given the economic issues caused by the pandemic and uncertainties surrounding the UK’s future trading terms with the EU, the findings are pretty impressive.
The major talking point of 2020 has undoubtedly been the Covid-19 pandemic, which has had such a detrimental impact on most other property sectors. However, industrial and logistics appears to have bucked the wider property industry trend with 25% of respondents stating there had been no real change to their business and 27.7% saying it had actually had a positive impact.
There is plenty of room for optimism about the future as well, with 19.6% of census respondents stating the current business conditions versus the last six months were much more favourable, 22.6% saying they were slightly more favourable and 11.6% saying they were the same.
The pandemic may not have significantly impacted the business performance of many companies in the industrial and logistics sector, but it has had a seismic effect on the way they operate. Some 64% of respondents said their top priority was increasing the ability to allow staff to work from home while 30% said they had had to redesign their existing facilities to take into account social distancing practices.
The good news for the industrial and logistics sector is that despite the current economic headwinds affecting the wider UK economy, 41.1% of occupiers still anticipate requiring more space over the next two years while 48.2% think they will need the same amount of space and only 10.7% believe they will need less space.
As a result, it is not surprising to discover that 47% of agents think industrial and logistics take-up will increase in the next 12 months, with a whopping 81% of developers, investors, land agents, advisers and agents believing that take-up will rise (27.1%) or remain similar (53.8%) next year.
Investment activity in the sector is also anticipated to remain strong over the coming months. Sixty two per cent of agents, investors and asset managers expect investment into the sector to increase or stay the same in the next 12 months. Although this figure is slightly softer than last year, given the fallout from the Covid-19 pandemic, the deepest recession in UK history and Brexit on the horizon, investor sentiment is surprisingly robust.
Given the economic repair work required in 2021, it is reassuring that the sector is rising across the board to the demands being placed on it
That is not to say that the industrial and logistics sector is without its challenges. Covid-19 (21.1%) Brexit (20.3%) and the lack of supply of new buildings (18%) all scored highly in response to the question of what the biggest challenge facing the industrial and logistics sector is at the moment. Employment in logistics facilities (13.5%) and risings rents of logistics facilities (11.3%) also emerged as key concerns.
As for what the key factors impacting their own businesses at the moment are, Covid-19 (20.7%) and Brexit uncertainty (10.5%) again scored highly among occupiers, with more online purchases (14.8%) and increased customer demand for delivery (13.5%) also at the forefront of their minds.
To some extent, the industrial and logistics sector has been a victim of its own success with the high levels of take-up the sector has enjoyed in recent years and particularly 2020 swallowing up both existing, built supply and space in the delivery pipeline.
There is a looming danger of a supply/demand imbalance due to a shortage of new-build schemes being brought forward – a problem that has been further exacerbated by the pandemic, which has delayed some proposed schemes.
Of those developers, investors and asset managers still planning to deliver industrial and logistics schemes, London and the South East are the locations of choice, with the Midlands also featuring strongly.
Christian Matthews, director at Tritax Symmetry, says that for those people who work at the coalface of the logistics sector, and have been working flat out throughout 2020, the results of the census will come as little surprise.
“Perhaps more interesting is to stop and consider why there has been so much positive activity in the sector,” says Matthews. “Clearly, the further migration to online retail by us all accelerated by Covid has been a significant factor, which seems unlikely to reverse as we have become used to the ease of the process and its benefits. The ability to hold more stock to withstand supply-chain failures is another factor. We have also seen increased take-up from previously relatively quiet sectors such as film, TV and data centres.”
He adds that the mantra used within Tritax Symmetry is: ‘Logistics is the glue that binds the UK economy together.’ He says: “Given the economic repair work required in 2021, it is reassuring that the sector is rising across the board to the demands being placed on it.”
The results of our fourth annual census come at a time when the UK logistics industry is gearing up for a Black Friday and Christmas like no other
Kevin Mofid, head of logistics and industrial research at Savills, concurs with Matthews that the sector is well-positioned as we move into an unprecedented period of uncertainty and an acceleration of trends.
“The results of our fourth annual census come at a time when the UK logistics industry is gearing up for a Black Friday and Christmas like no other,” says Mofid. “The industry has proved adept at managing the fallout of what 2020 has thrown at it, but into 2021 I expect more strategic thinking will emerge.
“Retailers and manufacturers will move away from mitigating the fallout from Covid, to reorganising their supply chains to take into account the new demands for how consumers want to shop and the potential near-shoring of manufacturing.”
The big challenge at the moment for those looking to reorganise supply chains or near-shore manufacturing is the aforementioned shortage of supply, with Savills recently publishing data that suggests the sector is undersupplied.
“Our data on the market identifies that vacancy rates are falling in all markets and it’s therefore no surprise that occupiers have highlighted the availability of warehousing as a major concern regarding the market,” says Mofid. “The results of this census combined with our market data should give developers the confidence to deliver speculative development in the right locations and size bands to meet the demand that the census identifies.”