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Take-up of warehousing falls sharply

27 April 2020

Cushman & Wakefield’s Industrial Outlook revealed take-up down to 5.5 million sq ft, a 32% decline compared to the 10-year average.

However, the property specialist noted increased demand for for short-term industrial space as the impact of COVID-19 was acutely felt by the logistics sector. One example was Tesco temporarily re-taking possession of two recently vacated properties in Middleton, North West (300,000 sq ft) and Milton Keynes (620,000 sq ft) to deal with a spike in orders.

The availability of industrial space edged up slightly during the first quarter of the year to 72.4 million sq ft and is up by 22% from the same period last year. The lockdown is also disrupting construction activity, with several speculative schemes paused or delayed. So far, 2.5 million sq ft has completed this year with another 4 million sq ft underway.

Bruno Berretta, UK logistics research & insight continued: “The uncertain demand outlook and reduced lenders’ appetite for development finance will curtail speculative development in the short-term. But the net impact on supply will depend also on the amount of second-hand space returning to market due to tenant defaults.”

The escalation of the COVID-19 pandemic is also being felt in the investment market, with very few sales launched over the last few weeks and several deals put on hold.

Ed Cornwell, partner in Cushman & Wakefield’s Capital Markets team said: “Logistics investment deals that have completed have been to overseas buyers or Local Authority interest. Approximately half of the deals currently under offer are proceeding with the remainder are on hold. A number of assets have now been formally withdrawn from the market. Evidence from recent bids points to downward pressure on pricing for non-prime and / or short-term income assets.”

Cushman & Wakefield does however believe the long-term outlook for the sector remains optimistic.

Richard Evans, head of UK logistics & industrial at Cushman & Wakefield said: “New demand continues to be above average since the lockdown began with a further five million sq ft of requirements in the two weeks from the 7 April and almost two million sq ft going under offer.

He added: “Investor demand remains positive for strategic holdings and/or assets where the fundamentals are strong, such as London/South East and Manchester. Many investors have taken the view that this is just a blip and have faith in the long-term integrity of the sector and are therefore keen to pursue opportunities once the immediate impacts of the virus have subsided.”

You can read the full report here.