Rental growth in the UK industrial & logistics sector is forecast to continue to outpace both the office and retail sectors over the next five years, according to the latest research from global real estate advisor Knight Frank.
The company’s UK Logistics Market Outlook Report revealed that industrial rents are expected to rise an average of 4.2% per annum over the next five years. This is compared with an expected 1.7% per annum for offices and 0.6% per annum for retail. The sector’s strong occupier market fundamentals and persistent growth in online sales are expected to continue to drive rents.
UK market area leader Greater London is expected to continue to maintain its position. Average rents are forecast to rise 8.7% in 2022, with double-digit growth predicted for areas of intense demand and short supply. Prime London rents rose 25% (units over 50,000ft2) and smaller units recorded even stronger growth, with prime rents for units sub-20,000ft2 rising 56% over 2021- a record-breaking year.
“Confidence in continued rent growth, and increasing macroeconomic volatility, will continue to drive investor appetite for both value-add and long-income strategies,” commented Claire Williams, Industrial & Logistics Research Lead at Knight Frank. “However, it is the middle-ground assets with unexpired lease lengths of 10-20 years that look to present opportunity for relatively attractive returns.”
“Even against the backdrop of a stellar few years for the industrial and logistics market, 2021 will go down in history as the year in which just about every conceivable record was emphatically broken”, said James Polson, national head of industrial & logistics at LSH.
As a direct consequence of the online retail boom, occupational activity was led by the retail and wholesale sector as major players accelerated expansion plans and took 42% (33 million sq ft) of space. Amazon was again the most active single-player, accounting for 12.5 million sq ft of space across 32 deals. Distribution and 3PL operators have also proved particularly active on the back of structural change, accounting for 21% (16 million sq ft) of take-up in 2021.
The sector has also experienced increasing diversity across its occupier base, with operators of data centres and gigafactories both concluding significant deals during 2021.