Use of third party logistics providers indicative of strength of ecommerce despite economic uncertainty.
Colliers’ latest research shows that 3PLs have driven demand in the first half of the year, accounting for 40.5% of take up. This is partly in response to an increased need for flexibility from businesses arising from economic uncertainty, whereby using external delivery firms reduces costs and pressure on the business compared to in-house provision. Online shopping continues to be popular despite rising inflation levels and interest rates, creating a ‘perfect storm’ for the rise of 3PL take-up.
The demand from 3PLs has impacted the larger end of the market with the number of deals for warehouses over 300,000 sq ft reaching an all-time high in H1, with 26 deals taking place in H1 compared to the 23 and 20 transacted over the same period in 2020 and 2021 respectively. For space over 100,000 sq ft, take up reached 21.2 million sq ft in the first half of the year, only 14% below the record-breaking 24.8 million sq ft in H1 2021.
Len Rosso, head of industrial and logistics at Colliers, comments: “Interestingly, online retailers have decreased their activity in H1, only accounting for 13.6% of take-up, down from over half of all take up this time last year. This can be partly explained by the increase in activity by 3PLs, which many online retailers are currently employing for logistics solutions. It is also worth noting that the year-on-year figures are largely skewed by Amazon, which alone accounted for 35% of the total in H1 last year, they are a clear testament to a robust occupier base in the market.
“There’s no doubt the creation of new supply is struggling to keep up with strong occupier appetite for warehouses. There is currently only 18.9 million sq ft across all grades in the market, 20% down year-on-ear which equates to less than six months’ supply. These tensions are set to become even more strained as occupiers seek to reduce their carbon footprint, increasingly looking for new space that aligns with their ESG agenda.”
The strong levels of demand in a depleted supply environment mean that purpose-built space accounted for 52% of total take up while speculative space recorded a 31% share.
Andrea Ferranti, head of industrial and logistics research at Colliers, adds: “As a result of these strong market dynamics we are witnessing exceptional rental growth across the UK, with the latest MSCI data in June showing a six-monthly average growth of 6.3% for national distribution warehouses while London industrial assets outperformed at 9% over the same period. Looking to the end of the year the market will remain undersupplied alongside continued elevated demand. Therefore, as predicted at the beginning of the year, we are still expecting 12.5% average rental growth for prime warehouses.”