Expect more interest in flexible space

Supply was still in check at the end of Q1, but we expect this to slightly increase again as the effect of the lockdown and lower consumer spending result in some occupiers rationalising their current warehouse space.

Rents and rent-free periods are still holding firm as landlords wait to see how the current business environment will pan out. Depending on the depth of the economic fallout, we may see an increase in business bankruptcies towards the latter part of 2020.

Looking at the industrial and logistics sector nationwide, there has been a slowing up of transactions with most deals taking longer. That being said, in general, long-term requirements have not been put on hold.

As a result, at Colliers, we expect an increase in demand for flexible storage space, ideally with an element of fit-out, as retailers look to hold stock flowing into their businesses. In addition, we expect occupiers to rethink their supply chain requirements, particularly for perishable items. This may result in increased demand for chilled space in close proximity to port-centric hubs.

Even though the industrial and logistics sector is more resilient than others, we expect occupiers to cut costs until the economic environment and their sales improve. In the medium term, we will witness a slight oversupply of accommodation coming back to the market, which could see rents plateau.

The reality is that there could be tenant incomes lost due to forfeitures on not paying rent for a long period of time. However, prime assets, long let to financially strong covenants, will continue to achieve keen yields.

In more positive news….

The current coronavirus crisis will accelerate the change in consumer behaviour and will force those occupiers with greater growth potential to upscale their online fulfilment operations.

Great challenges bring innovation and will change people’s attitude towards shopping

Great challenges bring innovation and will change people’s attitudes towards shopping. This is definitely the case with this health crisis, which will prompt some occupiers to find new ways to streamline deliveries.

The grocery sector will be the most positively affected as all age cohorts are now discovering the benefits of shopping online. This crisis has demonstrated that there was very little physical space capacity in the market and the advances in technology will support supermarkets in their drive to increase capacity as consumers continue to buy their goods online.

Andrea Ferranti is head of industrial and logistics research and Len Rosso is head of the industrial and logistics team at Colliers International