Trends in the Industrial and Logistics Property Market

Industrial and Logistics directors, Neal Matthews and Chris Wade sat down to discuss some of the trends and predictions they're seeing in the lettings market.

 

The industrial property market has shown remarkable resilience despite recent fluctuations. While demand has tapered from its peak, it remains strong across most unit sizes, with rents continuing to rise, albeit at a slower pace. Key trends include robust occupier interest from the creative industries and self-storage providers. Inner London retains a vibrant market, particularly for retail and creative sectors, driven by the need for proximity to central hubs. However, a lack of new developments and supply shortages within the M25 highlight the importance of strategic planning and innovative site utilization by landlords to meet evolving demands and capitalise on current market conditions.

 

 

What are some key trends you're seeing in Industrial lettings?

We've come from a high a couple of years ago, when the industrial lettings market was booming. Compared to other sectors, industrial property has coped very well, and we've seen a steady amount of demand. It has fallen away from the real peak, but there is still demand across most size ranges for most units. Rents have continued to increase, albeit at a much slower pace, and void levels are still low.

 

 

Buoyant market

I think it's fair to say that the industrial property market and its various sub markets have been more buoyant than others in recent years. A plethora of research tells us that occupier demand from the e-commerce sector will continue to grow. We haven't seen that growth within the occupier demand that we have on our books at the moment in London, but there are sectors of the market which remain resilient.

 

 

Sectors fuelling demand

The creative sector of artists and makers is still very much there. At the other end of the spectrum, waste and minerals maintain an element of the market but it is a bit more subdued. One growth area we've witnessed in the last six months is the self-storage market, which has continued to grow with demand for sites from the leading players and several new parties coming into the market.

 

 

Is supply shortage still contributing to demand within the M25?

It is within the M25 but at a much slower pace. There is a lack of supply and not many new build starts at the moment. Through the second half of 2023 and into this year so far, we're not expecting too many developments to start on site, so the supply picture is not likely to change dramatically. Landlords are generally holding their nerve and keeping their asking rents where they are or in some cases sort of nudging them forward where they can.

 

 

Oversupply hotspots

There were areas of oversupply hotspots such as the A13 corridor, although we are seeing that supply gradually diminishing. Developers are not putting a spade in the ground yet on sites they might've bought two, three, four, five years ago, which is interesting on its own. That lack of development is perhaps reflecting the significant shift in yields that we saw two years ago, where values have, in essence, changed by probably a third, if not more in some cases.

 

 

What are the rent trends outside of the M25? 

Outside of the M25 and Home Counties up to 15 miles from the M25, we've seen a huge increase in rents in that market over the last 10 to 12 months. Occupiers have been facing significant uplifts in central London on rent reviews and lease renewals, where the new rents are too much of a jump for operations. Therefore, we've been looking to move up the arterial routes out of London, and those commuter towns have seen a big increase in rents, certainly in the prime warehouses.

 

 

What is the difference between prime and secondary rents?

Prime rents in London are often quoted as much as £40 a square foot. Very rarely does that actually come to fruition. This transaction figure depends on where the properties are regarding the microlocation. Some properties are far more attractive to occupiers than others.

 

The market has been becoming more price-conscious and occupiers are looking for where they can get the best value for money. Sometimes, secondary properties, whether secondary in terms of quality or location come to the fore in that aspect.

 

There's no doubt that the very modern estates which have been built by some of the core developers have a very strong position in the market with occupiers needing ESG compliance, but those are typically reserved for larger companies who have the budget.

 

 

What are occupiers looking for?

At the larger end of the scale, the bigger the units are, the more occupiers are looking for sustainable and ESG specifications within the building. For smaller units, target occupiers being SMEs, are more concerned with their location, pricing, heights and loading, but after that, their requirements on specifications lowers.

 

Light industrial spaces, which form a strong part of the inner London market, attract occupiers with a desire to be near public transport so their staff can get to and from their place of work. It's obviously a common thread at the moment, but staffing is a challenge and helping them, the staff and colleagues to get to their offices or factories or places of work is an important part of how the business decision is made.

 

 

What are the lettings trends you're seeing for development land?

New build starts have slowed down over the last year or so. People are looking at development sites in a slightly different way and I think that they're looking to perhaps utilise them as open storage to break them up into smaller plots, surface them, make sure that security is right, lighting is in, so drive rents over the next five to 10 years and perhaps, until the next development cycle comes around and then at that point redevelop the sites.

 

It's an interesting concept that we're not creating new industrial land in the main industrial land supply or stock is diminishing through developments for other uses ostensibly as it has been well put into media housing has taken up a lot of industrial land.

 

Whilst there are protections in place in terms of planning policies to ensure that there is a supply of industrial land, often we're seeing that the supply of industrial accommodation doesn't necessarily meet occupiers needs. Maybe there's an argument to say, park your sites until such a time that it creates a different value in a different economic climate by renting it out and creating income.

 

 

What is creating demand for inner London industrial occupiers?

The inner London industrial market has become polarized into existing industrial estates that are being retained, and there are areas around King's Cross and Islington that are focused on the industrial sectors. There are areas around Bromley-by-Bow and Canning Town in our patch and as you head North, you've got the Enfield market. They are distinctly different these days with occupier demand for inner London coming from, nearby surrounds. When you spread further out towards the North and South Circular, and also to the M25, it focuses on logistics as a market.

 

 

How are some landlords taking advantage of current market demand in inner London?

Brewery Road is a case in point of that inner London market positioning. We had two units where we were marketing them for the City of London. It's about 35,000 square feet overall, split in two, fully refurbished and now we've got them under offer to retail led clients. They needed to be close to their offices in central London and were prepared to pay a fairly premium rent to remain in that location or remain as close to the West End as they could because really after that, you're then looking out towards the North Circular.

 

As you head towards North London to Tottenham Hale and even Blackhorse Lane in Walthamstow, there are a range of occupiers with the focus in recent years being on the F&B sector. Particularly in Uplands Business Park of Walthamstow, there is a draw from the brewery trade with distillers on site as well as coffee roasters and other artisan food operators and producers. Similarly, Lockwood Industrial Park in Tottenham Hale, Beavertown and various other food suppliers have taken space there.

 

These have been a success because the landlords have targeted those F&B sectors from the start. One or two first movers have turned into a real snowball effect - those breweries and roasteries all want to congregate together, but it doesn't just happen overnight. There's a lot of planning and thought that went into that to create those hubs for creative businesses in industrial locations, it's not just a case of putting up a board and just hoping that that tenant mix will happen.

 

There is some planning behind it and so much value there to be alongside the other similar businesses. With Florentia in Haringey Warehouse District, we've got 100,000 square feet of new build space to be delivered in October of 2024. Building on what's on the current estate we are really looking towards those creative businesses and hopefully to be anchored by some of the F&B operators in the breweries or coffee roasteries to come and take out some of the larger units that we've got.

 

 

To summarise:

 

• Widen your appeal to other businesses not traditionally targeted for industrial space
• Let out space on development land to take advantage of open storage demand and create income
• Get a valuation on market rents for properties located on arterial routes out of London