Logistics market sees surge in demand to meet COVID-19 requirements
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% 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.
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.
Rob Taylor, partner, logistics & industrial agency at Cushman & Wakefield in Manchester, said: “The general consensus in the North West is one of cautious optimism as our clients sense that our sector is looking likely to be resilient and one that will see opportunities arise as occupiers adapt in the short- to medium-term and beyond.
“Whilst we have seen a number of our requirements placed on pause over the last few weeks, we continue to speak with those clients through this period and when the time is right, those requirements will, no doubt, be live again.
“With several named enquiries in the market still pressing ahead with their plans and asking for proposals from developers and landlords alike, there is every chance demand could outstrip supply in the near future presenting opportunities for us all.”
The escalation of the COVID-19 pandemic is also being felt in the investment market, with very few sales launched over the past 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 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.
