Take-up of industrial and logistics (I&L) space in the UK reached 8.9m sq ft in Q3 2022, 15% above the long-term average for the quarter, according to Savills. Its UK logistics overview report reveals there were 32 separate deals in the quarter, just above the Q3 average of 30.
So far this year, the majority of transactions have been for units of 100,000 sq ft to 200,000 sq ft (56%), followed by 200,000 sq ft to 300,000 sq ft (17%) and 500,000 sq ft (12%). Units of 400,000 sq ft to 500,000 sq ft accounted for the lowest number of deals (4%).
The East and West Midlands continue to be the most popular warehouse locations, accounting for a combined 13m sq ft (35%) of the 38.5m sq ft of space taken in 2022 so far.
Demand for tailored and new I&L space remains particularly high, Savills says. So far in 2022, 51% (19.5m sq ft) of occupier demand has been for build-to-suit (BTS) units – properties redesigned to meet the needs of a specific tenant. Speculative take-up of new properties has reached 10.8m sq ft, the highest level since 2011. However, demand for secondhand units has fallen to 8.2m sq ft and accounts for just 21% of the market, the lowest level Savills has recorded.
Will Laing, associate in Savills’ I&L research team, says the data shows that the “fundamentals of the UK I&L market remain robust”.
He adds: “Looking ahead, we are tracking a significant amount of space under offer, which should see take-up exceed 45m sq ft by the end of the year – substantially above pre-Covid-19 levels. Occupier demand continues to revolve around better-quality units, with 51% of demand for BTS units, the highest level since 2018. The range of businesses taking space remains diverse and we are still seeing new entrants, business consolidation and expansion.”
Savills’ data also highlights the difficulties many occupiers face trying to find I&L space, with the UK average vacancy rate at 3.3%, more than two percentage points lower than the seven-year average of 5.85%. “In regard to supply, vacancy is still critically low at 3.3% and only 46% of the current vacant stock is considered grade A,” says Laing. “This suggests that pressure will remain on occupiers looking for good-quality warehouse space, which in turn will see rents remain robust for prime stock.”
Laing says that with building costs rising and the economy struggling, Savills predicts that construction of new I&L developments will slow down. “This means there is likely to be little evidence regionally of oversupply,” he adds.