Leasing volumes for warehousing spaces exceeding 50,000 sq ft are set to total 36m sq ft in 2023, compared with 46m sq ft last year, according to Knight Frank.
Nearly 7m sq ft transacted in the first quarter, according to findings shared exclusively with EG. Knight Frank said its forecast is in line with the pre-pandemic five-year average of 35m sq ft.
Researchers said the change was largely a result of the slowdown in expansion among online retailers and distribution firms, which scaled their operations at unprecedented levels between 2020 and 2022 on the back of surging e-commerce growth.
Online retailers accounted for 20% of warehouse take-up last year, compared with 36% in the previous year, which was an all-time high. Online sales amounted to just over a quarter of total UK retail spend last year, compared with 30% in 2021.
Going forward, online sales volumes are forecast to rise to £147bn by 2027, creating an additional 45m sq ft of warehousing space requirements over this period.
However, Knight Frank said a broader range of tenants will offset reduced demand from etailers. Manufacturers accounted for 26% of floorspace taken in Q1, inching up from a quarter of take-up last year.
Rising demand from manufacturers
Take-up from life sciences manufacturers increased by 193% in the past 12 months. Among leases signed during Q1 2023, Siemens Healthineers took 600,000 sq ft in Bicester, Pelican Healthcare agreed 82,000 sq ft in Cardiff and CMR Surgical is taking 75,000 sq ft in Ely, near Cambridge.
Leasing activity from food producers has risen by 94% over the period. Notable deals include Jones Food Company’s deal for a 148,000 sq ft vertical farm near Bristol last year, and Harvest London’s agreement to occupy 139,977 sq ft at Prologis Park Beddington in Croydon.
Demand from advanced manufacturers, including engineering, electronics and automotive and aerospace firms, accounted for just over 10% of annual take up between Q1 2023 and Q1 last year.
New starts fall as costs grow
In terms of development pipeline, around 33m sq ft has already completed or is expected to complete in 2023. However, new development activity is falling on the back of rising costs and softer exit yields.
There have only been four new development starts this year, compared with 23 in the same period last year. Knight Frank said this pointed to limited availability towards the end of 2023 and into 2024.
Vacancy rates are near an all-time low of just 3.3%. This is expected to contribute to ongoing rental growth, with a 4.3% rise expected in 2023.
Claire Williams, industrial and logistics research lead at Knight Frank, said: “We believe the temporary pull back amongst online retailers will be cushioned by an increasingly diverse range of occupiers, including food producers, manufacturing firms, data centres and film studios.
“The market has already witnessed this over the past year, with more companies reshoring to ensure compliance with post-Brexit legislation and avoid costly tariffs or disruption. Manufacturing and distribution companies are also localising supply chains, to meet sustainability targets and transition away from a dependence on low-cost labour toward more capital-intensive, automated facilities.”
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