Demand for short-term industrial space surged in March as the impact of COVID-19 was acutely felt by the logistics sector, according to new data from Cushman & Wakefield.
The government lockdown and consumer stockpiling led to an increase in demand for short-term space from supermarkets and the pharmaceutical and public health sector, leading some landlords to consider short-term lettings.
Cushman & Wakefield’s Industrial Outlook revealed that despite the increase in demand for short-term space, total take-up of industrial space in the UK fell 32 per cent to 5.5 million sq ft across 41 deals as many retailers operating in ‘non-essential’ sectors such as fashion and homewares temporarily close their online operations in response to employee health and safety concerns.
Bruno Berretta from Cushman & Wakefield’s UK Research & Insight team, said: “The material uncertainty created by the COVID-19 pandemic and the practical implications of the government-imposed lockdown, including the ability to carry out inspections, have had an undeniable impact on the UK logistics market. While some long-term strategic requirements are still progressing, many have been put on hold and overall new enquiries are down in March.”
The availability of industrial space edged up slightly during the first quarter of the year to 72.4 million sq ft and is up by 22% from the same period last year. The lockdown is also disrupting construction activity, with several speculative schemes paused or delayed. So far, 2.5 million sq ft has completed this year with another 4 million sq ft underway.
Bruno Berretta added: “The uncertain demand outlook and reduced lenders’ appetite for development finance will curtail speculative development in the short-term. But the net impact on supply will depend also on the amount of second-hand space returning to market due to tenant defaults.”
Despite the current uncertainty, Cushman & Wakefield believes the long-term outlook for the logistics sector remains positive, with COVID-19 likely to accelerate ongoing structural trends such as a greater penetration of online shopping and manufacturers and retailers considering holding more stock domestically to protect themselves against future supply chain disruptions.
Dave Robinson, Partner, Logistics & Industrial agency at Cushman & Wakefield in Leeds, said: “The Yorkshire and Humber markets continue to perform well with take-up exceeding the 10-year average. 2020 was off to a strong start with The Range taking 546,970 sq ft in Wakefield in January and with several existing buildings also under offer and some significant pre-lets in the offing, despite the COVID-19 pandemic, the outlook for the year is optimistic.
“Whilst there is speculative development in South Yorkshire and to a less an extent in West Yorkshire, there remains a lack of deliverable opportunities. The supply / demand imbalance does not look likely to change which points towards a continued trend of strong rental levels and land values. Opportunities will emerge for the sector as a whole and the Yorkshire market has an excellent supply of labour and operators ready to capitalise.”
The escalation of the COVID-19 pandemic is also being felt in the investment market, with very few sales launched over the last few weeks and several deals put on hold.
Ed Cornwell, Partner in Cushman & Wakefield’s Capital Markets team, said: “Logistics investment deals that have completed have been to overseas buyers or Local Authority interest. Approximately half of the deals currently under offer are proceeding with the remainder are on hold. A number of assets have now been formally withdrawn from the market. Evidence from recent bids points to downward pressure on pricing for non-prime and / or short-term income assets.”
Cushman & Wakefield does however believe the long-term outlook for the sector remains optimistic.
Richard Evans, Head of UK Logistics & Industrial at Cushman & Wakefield, said: “New demand continues to be above average since the lockdown began with a further five million sq ft of requirements in the two weeks from the 7 April and almost two million sq ft going under offer.
He added: “Investor demand remains positive for strategic holdings and/or assets where the fundamentals are strong, such as London/South East and Manchester. Many investors have taken the view that this is just a blip and have faith in the long-term integrity of the sector and are therefore keen to pursue opportunities once the immediate impacts of the virus have subsided.”
Some of the largest deals in the first quarter of 2020 include Tesco temporarily re-taking possession of two recently vacated properties in Middleton, North West (300,000 sq ft) and Milton Keynes (620,000 sq ft) to deal with a spike in orders.
Other deals which completed before the market went quiet in March, included: the letting of the former 546,970 sq ft Poundword unit in Wakefield to The Range, and the letting of the largest speculative development in the North, 525 Haydock in Haydock (525,300 sq ft) to Kellogg’s.