This site uses cookies to improve your experience.

We use cookies to offer you better browsing experience. Cookies enhance site navigation, analyze site usage, and assist in our marketing efforts.To understand more about how we use cookies or to change your cookie preferences, visit our privacy and cookies page or click on ‘Show settings’. By clicking ‘Accept all Cookies,’ you agree to the storing of cookies on your device.

Privacy Policy Centre

When you visit any website, it may store or retrieve information on your browser, mostly in the form of cookies. This information might be about your preferences or your device and is mostly used to make the site work as you expect it to. The information does not usually directly identify you, but it can give you a more personalized web experience.

Because we respect your right to privacy, below you will find descriptions on the types of cookies used on this site and options to opt out where preferred. Please note blocking some types of cookies may impact your experience of the site and the services we are able to offer.

These cookies are necessary for the website to function and cannot be switched off in our systems. They are usually only set in response to actions made by you which amount to a request for services, such as setting your privacy preferences, logging in or filling in forms.

You can set your browser to block or alert you about these cookies, but some parts of the site will not then work. These cookies do not store any personally identifiable information.

These cookies allow us to count visits and traffic sources so we can measure and improve the performance of our site. They help us to know which pages are the most and least popular and see how visitors move around the site.
All information these cookies collect is aggregated and therefore anonymous. If you do not allow these cookies we will not know when you have visited our site, and will not be able to monitor its performance.

These cookies allow us to count visits and traffic sources so we can measure and improve the performance of our site. They help us to know which pages are the most and least popular and see how visitors move around the site.
All information these cookies collect is aggregated and therefore anonymous. If you do not allow these cookies we will not know when you have visited our site, and will not be able to monitor its performance.

Privacy and cookies

The investment market is also very strong, Knight Frank forecast a record year across Europe, with €38.3 billion already traded in 2021. Yields of 3-4% are now typical both in the UK and on the Continent, Germany probably being lowest.

The Urban Land Institute and PwC’s benchmark Emerging Trends in Real Estate research, released in November, continues to rank logistics facilities high in the list of the sector’s most desirable asset classes so weight of capital looks unlikely to diminish.

So where is the sub-sector heading in 2022? How does the world of warehouses continue to thrive in an already red-hot market? The re-opening of shops, affordability for occupiers, rising inflation through material shortages and supply chain difficulties potentially, in turn, leading to interest rate rises and, of course, a hugely competitive market for new opportunities are all cited as potential dark clouds on the horizon.

The rise of e-commerce – more recently turbo-charged by the pandemic – kick started the warehouse boom. with the latest iteration, ‘Q-commerce’ - operators like Deliveroo, Getir and Gorillas - generating demand as new entrants (particularly as they partner with established supermarkets), increasing on-line penetration in retailing appears to have no let up.

And other types of customer are also fuelling demand and reducing supply. I’ll pick on two examples. Data centres and creative industries. Netflix, an important new SEGRO customer in Enfield, has taken 250,000 square feet as a content production campus. This is speculatively developed space that would otherwise have been taken by more traditional warehouse users.

With demand so strong and supply of warehousing overall constrained by limited availability of land, a slow planning process and restrictive planning policy and now shortages of materials and labour, which is also pushing up construction costs, the equation can only result in continued rental growth.

This is good news for investors as rising rents continue to underpin low yields. And while that growth is in place, inflation becomes less a threat and more an opportunity. Even an increase in interest rates to dampen inflation (consensus by most economists being only modest rises anyway) is likely to be outweighed by the sheer level of capital looking for a home.

Affordability of warehouse space for occupiers then becomes the risk. Property Market Analysis (PMA) suggests that property continues to be a very small part of overall logistics cost.

Rent typically accounts for less than 5%, with transport at 50%, the carrying of inventory at 22% and labour at 10% (and rising). Occupiers are willing to pay a premium for the best locations because they are crucial to their business.

A company promising delivery within the hour in London, simply cannot lease a warehouse half-way up the M1 because it would torpedo their whole customer proposition.

But a word of caution to those looking at the sub-sector. Not all industrial property is equal. A tertiary, multi-let estate located on the edge of a small market town cannot accurately be described or regarded as ‘urban logistics’.

Its performance will not be driven by the themes I’ve described. Last-mile delivery locations need a large concentration of customers in their immediate radius and road congestion to inhibit easy access to them. That’s what justifies their high rents and valuations.

Overall, the outlook for warehouses remains extremely strong. The historic image of industrial property as real estate’s `Cinderella’ sector is certainly over, she really can stay at the ball!

Article first published in Property Week 

Copy URL