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Savills : The industrial & logistics sector continues to break records in 2021, says Savills

01/21/2022 | 03:52am

Over the course of the year Savills logged 220 separate transactions, beating the previous high of 172 in 2020. Whilst online retailers accounted for 35% of take-up, 3PLs, automotive, manufacturing and high street retail all increased the amount of space taken in 2021, demonstrating the breadth of demand from across the sector.

Kevin Mofid, head of industrial & logistics research at Savills, comments: "As a result of ongoing macro pressures including Covid-19 and Brexit, there remain huge pressures on supply chains that are having to adapt to a rapidly changing landscape. Whilst many countries are contending with abnormal levels of demand, the UK is also having to deal with the full EU custom controls that came into play on the 1st January 2022. This has led to businesses looking to mitigate any potential delays by holding more inventory, which is starting to translate into increased demand for warehouse space."

However, as a result, supply remains critically low falling at its fastest pace ever standing at just 17.35 million sq ft. Consequently, developers have responded to the prevailing market conditions and there is now 18.6 million sq ft of speculative space currently under construction.

Richard Sullivan, national head of industrial & logistics, adds: "Overall the logistics real estate market has risen to the challenges presented by Covid-19 and Brexit over the past two years. However, with a backdrop of the lowest vacancy ever recorded, along with rising construction costs, it will be interesting to see how the anticipated demand of 2022 can be satisfied. Given constraints, second hand stock and build-to-suit will become increasingly important to help fulfil demand."

From an investment perspective, the continued strength of the occupational market and record low vacancy has led to considerable rental growth. Given the positive sentiment towards the sector, investment volumes for single let logistics, excluding corporate mergers and acquisitions and recapitalisations, now stands at £10.42 billion, eclipsing the previous annual record in 2020 by 73%.

The significant weight of capital in the market will continue to put downward pressure on Savills prime yields, which now stand at 3.25% for both logistics and multi-let industrial estates.

Tom Scott, director in Savills industrial investment team, says: "With the occupational markets showing no sign of slowing, coupled with ongoing supply constraints, it is likely that many markets will continue to see rental growth of at least 10% in 2022. This will ensure investors continue to compete for the best assets, which could see yields compress further still. However, with continued upward pressure on inflation, further interest rate rises are expected and this may limit the extent of yield compression in 2022 when compared to previous years."

Disclaimer

Savills plc published this content on 21 January 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 21 January 2022 08:51:02 UTC.

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