Demand for warehouse space continues to outstrip supply, driving up rents

Online shopping continues to drive high demand for warehouse space despite the cost of living crisis, according to property consultancy Colliers.

Some 11.3 million sq ft was taken in the first three months of the year, 11% up on the five-year average in quarter one.

Demand continues to outstrip supply, according to Colliers, which monitors take-up of units over 100,000 sq ft.

As a result, rental growth was accelerating, Colliers said, pointing to the latest MSCI monthly industrial index, which showed a rise of 1.9% in the UK in March.

“The sustained shift towards online shopping and the resulting demand for warehouse space has caused rental growth to accelerate as new speculative supply is absorbed at a rapid pace,” said Andrea Ferranti, Colliers head of industrial and logistics research. “The UK saw a rental growth of 3.4%, quarter on quarter, while London assets recorded growth of 5.1% over the same period.

“Despite the economic headwinds of the cost of living crisis, ONS figures show that the share of online sales over total UK retail sales remained high at 26% in March. This is particularly strong when compared to pre-pandemic levels, and as such occupier demand for fulfilment space will remain unabated.”

Len Rosso, Colliers head of industrial and logistics, said: “The supply and demand imbalance for industrial space shows no sign of lessening despite the efforts of developers to bring new space online at a rapid pace.

“There is currently 15.5 million sq ft of new space under construction but given the strong levels of demand this will do little to ease the pressure.”

The lion’s share of activity in quarter one was in the Midlands, which accounted for 47% of total take-up, Colliers said. Notable deals included Hotel Chocolat taking a 430,000 sq ft warehouse at Panattoni Park in Northampton.

The figures come despite Amazon recently forecasting a slowdown in growth thanks to people cutting online spending amid soaring inflation. The online retailer last month reported its first quarterly loss since 2015.