‘Huge demand’ for logistics space across the Midlands

In the first quarter of 2021, 4.96m sq ft of prime logistics space over 50,000 sq ft in size was taken-up across the East and West Midlands..

The figure is an increase on the 4.3m sq ft taken-up in Q4 2020, and just ahead of the five year quarterly average for the region.

According to property company Gerald Eve, prime headline rents in the Midlands grew by an average 0.4% in Q1, compared with the 2.2% prime rental growth recorded nationally.

However, since the onset of Covid in Q2 2020, prime rents have increased by an average 3.5% in the Midlands and the research shows consistently strong rates of growth over the last five years.

John Sambrooks, partner at Gerald Eve’s Birmingham office, said: “Covid has had a significant influence on the way we live, work and shop, which has in turn impacted on existing logistics supply chain networks. Internet retail sales data showed that online accounted for 29.4% of all retail sales in April, compared with 19.1% in February 2020 before Covid struck. The physical reopening of the economy and removal of lockdown restrictions resulting in increased footfall on the high street, has meant that the % online has understandably fallen from the peak 36.3% registered in January this year, but it still shows a significant increase on pre-Covid levels and the trend online has been accelerated by around five years.

“This has of course had a profound effect on demand for logistics space and we are definitely seeing that play out across the Midlands, with the letting of speculative developments including EMDC525 to online retailer BuyitDirect. We have also seen increased demand for existing space with strong competitive interest in the former Argos Distribution facility called Stafford475 (474,903 sq ft) with a deal likely to conclude shortly.”

In Q1, internet retailers and logistics occupiers accounted for over half of all recorded occupier activity in the Midlands.

Sambrooks said: “The combination of occupiers taking available stock, together with the significant volume of space already under offer, resulted in a sharp reduction in supply in Q1. The availability of logistics space in the Midlands fell to 5.8% in Q1, the lowest since Q3 2018 so supply continues to be a major issue. Anecdotally, several occupiers are concerned about the lack of appropriate space to accommodate their future growth plans and although developers are responding with speculative schemes, this is likely to be an inhibiting factor going forward given how acquisitive occupiers are at the moment.

“We’ve also seen the weight of investment capital targeting the sector increase substantially since Covid. Capital previously allocated to retail or office sectors has re-routed to industrial and even existing capital targeted at industrial has increased. However, available investment stock remains in short supply, with few motivated sellers (outside of a few profit-takers) looking to sell. Such market conditions have had a profound impact on capital values – with our research showing average prime yields in the Midlands moving in an additional 21bps in Q1 alone, and a hefty 66bps since Q2 2020.

“Looking forward, as other property sectors begin to show signs of stabilisation as the lockdown is gradually lifted and bond yields continue to increase as the recovery prospects brighten, such downward intensity on yields is likely to ease, but industrial is expected to again be the sectoral outperformer in 2021. We forecast that rents will continue to grow, at an average of 1.9% per year over the next three years, with the strongest rate of growth expected in 2021, when the positive impacts of Covid lockdowns and post Brexit arrangements on demand for logistics property will be most acute.”