Warehouse rents predicted to rise by 5% in 2023 despite lower take-up levels

Commercial real estate firm Colliers has predicted that UK rental values ‘across the market’ will rise by 5% this year.

This is in spite of a ‘slow-down’ of occupier take-up, highlighted this week by the news that Q2 2023 was the weakest quarter for logistics property take-up since 2017.

Colliers says that, according to data from MSCI, warehouse rents increased by 1.8% in Q2 2023, contributing to a total increase of 3.7% in the first half of the year.

Len Rosso, Head of Industrial & Logistics at Colliers, said: “While there’s no denying that due to economic uncertainties, especially the continued interest rate rises, the industrial market is slower at the moment. However, despite these factors there are still strong fundamentals which are resulting in rents continuing to rise.”

“The heat of demand from occupiers has slowed from the pandemic race for space, but there’s still headwinds which are going to impact the amount of grade A stock available to occupiers, and so we forecast that rents will continue to rise this year.”

A recent Gerald Eve report, titled ‘Prime Logistics’, revealed that in addition to demand, speculative development is also set to slow in the UK. Although supply chain pressures have eased, Gerald Eve has said that the the high cost of debt, build cost inflation, softening tenant demand, and a protracted planning process still weigh on developer activity.

Andrea Ferranti, Head of Industrial & Logistics Research at Colliers, added: “While it looks like there may be a glut of new supply at the moment, this is coming on stream following a period of record low of available space.

“Watching the moves of investors and developers we can see that speculative construction starts are slowing dramatically, as everyone is mindful of several factors such as; the current cost dynamics of construction; uncertainty around exit yields; elevated borrowing costs; as well as occupier demand slow-down.

“While there’s some projects currently under construction, we can expect to see a peak in space availability in the next six to nine months, before becoming more constrained again in 2024 – which will also mean that rents continue to rise into next year.”

According to the Prime Logistics report, 16.7 million ft² of speculative space is under construction in the UK as of the end of Q2 2023. 4.7 million ft² of this is being built in Yorkshire – more than in any other region. Yorkshire is followed by the East Midlands, where 3 million ft² of this is being built.

Less than a million ft² of spec space is being developed in London, the North West, and South Wales. Meanwhile, Scotland only has 100,000 ft² of space under construction speculatively.

Source: logisticsmanager.com