Property Week, Savills, Tritax Symmetry and Analytiqa brought together some of the biggest names in logistics to look at the record-breaking surge in take-up and investment over the last few years, the factors driving the trend, the success of Amazon’s model and what the future holds for this booming sector.

CS tritax 18 feb

Panel of experts

Brian McBride, former UK chief executive of Amazon

Toby Green, head of London and South East industrial and logistics at Savills

Tom Leeming, development director at Tritax Symmetry

Kevin Mofid, head of industrial research at Savills

Mark O’Bornick, director at Analytiqa

In 2020, the industrial and logistics real estate sector broke almost every record going as the Covid-fuelled surge in take-up turbocharged investment in the asset class. In 2021, the sector broke those same records again as take-up continued to soar, international investment continued to pour in and vacancy rates hit an all-time low.

So, what does this mean for 2022? To answer that tough question Property Week, Savills, Tritax Symmetry and Analytiqa gathered some of the biggest names in logistics to look at the data alongside the results of the fifth annual industrial and logistics census. They discussed what the future holds for this booming sector.

Kevin Mofid, head of industrial research at Savills, began by explaining just how much the asset class had once again beaten all expectations last year.

“I have been talking and writing about warehouses for about 15 years now, and there have always been issues and macroeconomic factors that have affected the market in one way or another, but I cannot really recall a time when so many macroeconomic factors have aligned at the same time to have such an impact on our world,” he said.

“It is amplifying the market in every way possible – whether it is take-up, supply, the development pipeline or capital markets. Every metric is at an elevated level.”

According to Savills data, take-up last year reached a new record high of 55.1m sq ft, a stonking 86% above the long-term yearly average and eclipsing the previous record set in 2020 of 51.6m sq ft. This rapacious demand for space means the vacancy rate has plummeted to an all-time low of 2.9%.

To put that figure into context, Mofid said: “It would take almost 70m sq ft of new supply to come on to the market tomorrow to get us to a 12% vacancy rate, which historically is the point when rents stop rising.”

Meanwhile, Savills data also found that total investment volumes for logistics units hit £10.42bn in 2021, leaping 73% beyond the previous annual record set just last year, as yields hit a record low of 3.25%.

It is amplifying the market in every way possible – every metric is at an elevated level

Kevin Mofid, Savills

Mofid said this confidence in the sector was reflected in Analytiqa’s census, which revealed that 54% of respondents from a sample of more than 150 agents, developers and occupiers felt that business conditions were more favourable than they had been over the last six months.

This occupier optimism is reflected not just in large warehouse deals, Mofid added. Savills data showed that the surge in take-up in 2021 was spread across 220 warehouse deals of more than 100,000 sq ft – once again breaking the record of 172 deals that had been set just the year before.

It was a trend that was spread geographically as well, with every region in Savills’ database recording take-up above the long-term average. Yorkshire and the West Midlands had their highest levels of take-up on record, while the South East, North West and East Midlands recorded take-up of 36%, 86% and 114% above the long-term average.

This was also reflected in the Analytiqa survey – with more than 90% of occupier respondents saying they intend to take more warehouse space over the next couple of years. This may well be because according to the survey, 36% of respondents said the pandemic had had a positive impact on their business.

One business that has thrived due to the pandemic is Amazon. A surge in online shopping means it accounted for 25% of take-up in 2021, and its former UK chief executive Brian McBride said he believed the company’s growth could continue.

Pointing to the wave of closures, administrations and liquidations in the retail sector, McBride said: “I am not saying retail as an industry is threatened, but every single player within it is. There is nobody apart from Amazon who can guarantee they will be here in five years’ time.”

On the suggestion of a digital sales tax rescuing those retail businesses that are in trouble, McBride was equally direct. “If you are a struggling retailer, do not expect anyone else – especially the government – to solve your problems,” he said, adding that he believed the growth of online retail was “inexorable”.

“I think if you took an average across the total retail landscape, you could say [online retail] would be between 20% and 25%. Where is it going to end up? I would say it is going to get to 50%.

“It touched 50% in many sectors last year. The online growth rate was up there and has fallen back a bit, but it will get to 50%. I cannot tell you by when, but just accept that this is an inexorable trend. It is going to get there someday, so you need to start thinking about that and what that means for your business.”

McBride added that what this means for warehouse space is borne out in the Savills data. “The demand for warehouse space is going to continue, big and small,” he said.

“Amazon’s revenue is growing at between 20% and 30% a year. Given that it sells a lot of cheaper and lower-end stuff, units are growing at a faster rate than that, and it is units that drive the need for warehouses. Until Amazon stops growing, it is going to need more and more space.”

Alongside its continued demand for large distribution centres, McBride said that Amazon will also need smaller last-mile units for its Amazon Fresh brand and its same-day delivery services.

He said that Amazon is building up its own internal logistics capabilities too, so that it will not need to rely on third-party logistics companies, and that this will also require it to take more last-mile space.

During the Q&A session hosted by Mofid, Tom Leeming, development director at Tritax Symmetry, explained the difficulties of explaining to local authorities that warehouses can create high-quality jobs. “We are doing a lot of lobbying to local authorities and government on the importance of the logistics sector,” he said, adding that many industrial occupiers see themselves as tech and R&D businesses.

On the question of rental growth, Toby Green, head of London and South East industrial and logistics at Savills, argued that it was not being driven solely by online. “In London, it is about servicing the centre – the offices, restaurants and hotels. It is a varied base.”

Asked about the survey results, Mark O’Bornick, director at Analytiqa, explained why occupiers did not rank availability of space as a big concern despite vacancy rates hitting an all-time low in Savills data.

“I don’t think it is something to be too concerned about. I think that is largely driven by the inclusion [in the survey] of Covid in the last couple of years. Quite understandably, that has taken up a lot of people’s concerns.” He also noted that availability of space was highest on the list on a list of occupiers’ property-specific concerns.

In one of the final questions, McBride was asked whether he felt Amazon would ever convert other asset classes into warehouse storage space. “I don’t really see it,” he said.

“On last-mile logistics, you do not want to be in the city centre. They are not going to invest in city centres just because there is property available there. I think they will be very strategic.”

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