CoStar analysis: national logistics vacancy rate edges higher in Q2 as Leeds and London outperform

By Chris Johns - Tuesday, September 05, 2017 14:39

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The national logistics vacancy rate edged upwards slightly in the second quarter of 2017, albeit from very low levels, according to CoStar’s latest data.

With investors piling into the UK logistics sector, the recent launch of CoStar's first UK logistics market reports could not be better timed.

This article looks at national occupier fundamentals within the sector and compares recent performance of the 11 markets (and 86 submarkets) we are initially covering in our reports.

The national logistics vacancy rate rose slightly in the second quarter 2017 to 4.9%, with around 3m sq ft of net absorption met by 4m sq ft of new deliveries. Online retailers and logistics firms continue to drive demand for warehouse space, with the UK increasingly becoming a nation of online shoppers.

Online sales rose 16% year-on-year to a record £133bn in 2016, and are forecast to grow a further 14% in 2017, according to IMRG Capgemini e­Retail Sales Index. Such demand has put pressure on supply. The availability of logistics space has been on a downward trend since 2010. And despite construction ramping up since the beginning of 2016, much of it has been on a design­ and ­build basis, meaning vacancy rates remain low.

But how are different markets performing? Leeds, London, and Birmingham are leading the way. All have witnessed average rent growth of over 7.5% in the 12 months to the second quarter of 2017, with sub-5% vacancy rates in each. Conversely, Shropshire and Staffordshire, Leicester, and Glasgow—the latter two markets have vacancy rates of 7% or more—have recorded the weakest rent growth (of the 11 markets covered) over the same period. Shropshire & Staffordshire is the only market that has seen rents fall on an annual basis—albeit less than 1% and following sharp uplifts in previous years.

Looking ahead, the underlying fundamentals of the logistics market are likely to remain strong in the face of Brexit. This is supported by CoStar News’ latest sentiment survey, in which industrial property was deemed the sector best placed to weather any Brexit headwinds. Industry demand for sheds both big and small in the right locations is expected to continue regardless of wider economic conditions, encouraging further rental growth in most markets. CoStar’s new market reports will help investors uncover the best opportunities. Further coverage will follow through the remainder 2017.

cjohns@costar.co.uk

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