Take-up of warehouse space in units larger than 50,000ft2 reached a record 30.8 million ft2 in the first half of 2021, double that recorded in the first half of 2020 – itself a record-breaking year according to property consultant Knight Frank.
Retailers and distribution companies collectively accounted for 76% of take-up so far this year, as they race to expand online and home delivery capacity in response to growing levels of e-commerce penetration.
Online sales accounted for 28% of retail spend in 2020, up from 19% in 2019, and in the first five months of 2021 this rose to 32%. Even as lockdown measures ease further in the second half of the year, online platforms will continue to play a much bigger role in the retail market than they did pre-pandemic and this will necessitate more structural changes in retail supply chains.
“Supply (of units over 100,000ft2) has fallen to its fastest pace ever and now stands at 24 million ft2, a fall of 7.5 million ft2 in just six months,” noted Kevin Mofid of property agency Savills. “Nationwide vacancy is now at its lowest rate ever, just 4.24%.”
According to research from JLL, there was only 21.2 million ft2 of Grade A floor space available at the end of the first half of 2021, of which 11.4 million ft2 was under construction as landlords try to keep up with the huge levels of demand. Overall availability was 9% down on the total supply at the end of 2020.
Lack of availability is particularly acute in the big box market, with operators looking for units in excess of 350,000ft2 faced with very limited options.
“The record half-year stats for an H1 are evidence of what everyone who is closely involved in the sector already suspected,” commented Ed Cole of JLL. “Demand has continued at a staggering pace beyond what has been previously experienced. This has been predominantly driven by the same e-commerce businesses that reacted fastest to the surge in on-line retail last year continuing to acquire space, which are now being joined by those who want to keep pace and not be left behind.
“The issue all occupiers currently share is the problem of an acute and deepening shortage of modern supply across all key markets and size brackets causing a rate of rental growth not witnessed before. Whilst speculative development is coming through it is not matching the speed of take-up.”
“Many occupiers are struggling to find available units that match their requirements, and often have to compromise either in terms of location or specification,” agreed Charles Binks of Knight Frank. “Companies that are unwilling to compromise may need to put their expansion or relocation plans on hold as they await development completion.
“Online retail spend forecasts have been revised up over the past 18-months and operators have brought forward their e-commerce growth strategies. Yet, despite robust levels of demand from online retailers, distribution companies and 3PLs, the lack of available space and constraints on development are likely to impact on operator’s ability to acquire space in the coming months.”