Investment management company Colliers has reported that the slowdown in new warehouse development projects will continue to increase rents across the industry.
Currently, there are only 16 units sized between 100,000-200,000ft² under construction and four megasheds of 500,000+ ft² across the UK while Colliers is tracking just less than 8 million ft² of available logistics space under construction or due to break ground soon.
With occupiers preference for take up of new grade A space still prevalent, Colliers predicts that pressure on new supply during the next twelve months will sustain rental growth in prime locations.
Head of industrial & logistics research at Colliers, Andrea Ferranti, said: “Occupier demand has been sustained in the first quarter of 2024, with 5.8 million ft² of warehouse space already taken up in the first three months of the year, in line with the last quarter, despite the continuing economic uncertainties, it’s clear that demand remains resilient.
“Although investors’ conviction towards the industrial sector is strong, elevated borrowing costs continue to challenge financial appraisals, making it challenging for speculative funding deals.
“Construction costs have stabilised, providing some certainty on that front, however we do not foresee a generalised uptick in speculative development until there is clear evidence that borrowing rates are reducing.
“With occupiers increasingly searching energy-efficient space to future-proof their property portfolios for changes in legislation, there will be a shortage of vacant grade A space available, meaning that rents will continue to push on.”
The latest MSCI data shows a continuing, yet slower, trend in rental growth increasing an average of 1.1% across the UK in the first quarter of 2024.
Although this is half the growth rate witnessed in Q4 2023, in London there was slightly stronger growth with assets achieving a 1.5% growth in Q1, albeit still down from 2.4% in Q4 2023.
This year Colliers is forecasting an average industrial rental growth of 3.7%.
Len Rosso, Head of the Industrial & Logistics team at Colliers added: “Whilst occupiers have understandably been more cost-conscious of late, we are aware of several large warehouses under offer by well-known households’ name, which will support market activity over the next few months.
“We anticipate that 2024’s occupier demand will mirror the level of activity seen last year, as occupiers continue to optimise their logistics networks.
“Whereas in 2025, once we see interest rates starting to decrease, and the elections conclude providing political certainty, we will witness consumer confidence returning which will release the pent-up demand from occupiers, and provide reassurance to investors and developers to start the next wave of projects.”
