45 million sq ft of space was leased in the UK industrial and logistics sector throughout 2022, according to new data from Knight Frank.
This figure is lower than the record-breaking 70 million sq ft of take-up in 2021 but remains 8% above the 10-year sector average.
Take-up in Q4 2022 was 7.2 million sq ft, continuing the trend of slowing take-up since the peak of 21.5 million sq ft in Q3 2021, due in part to a lack of availability in key markets. Vacancy rates have also risen from 3.2% at the end of 2021 to 3.7% as of Q4 2022 but remain below the 5.2% vacancy rate recorded pre-pandemic, reflecting the resilience of occupier demand, driven in part by structural changes to the retail market and the rise of e-commerce. At the end of 2020, the UK logistics vacancy rate was 4.4%, and at the same point in 2012 it sat at 12.5%.
In response to high levels of demand from industrial & logistics occupiers for well-located schemes, Knight Frank data indicates that development activity has increased over the course of 2022, with 32 million sq ft of new space delivered over the year. However, with the new stock quickly being absorbed into the market and higher construction costs reducing the viability of development in some locations, Knight Frank predicts that supply will remain tight into 2023, particularly for well-located, Grade A facilities. Average rental growth across the sector is predicted to be 4% in 2023.
Claire Williams, Industrial & Logistics Research Lead at Knight Frank, commented: “Higher development and financing costs are likely to curtail development activity and the UK’s supply demand imbalance is set to persist into 2023. Though the sector is facing economic headwinds, the increasing diversity of the UK industrial and logistics occupier base will provide a breaker against these. This combination of factors will drive further rental growth in 2023.”
Charles Binks, Industrial & Logistics Department Head at Knight Frank, added: “Knight Frank continues to see enquiries for industrial and logistics space holding up, particularly from manufacturing and distribution firms, especially third party logistics firms. The reshoring or onshoring of manufacturing, the need to hold more stock and rising demand from less traditional occupiers, such as vertical farms and data centres, is continuing to spur demand for well-located, best-in-class space across the UK.”
