Source: Colliers - Note: Occupier deals 100,000+ sq ft
Given the extraordinary demand that we have witnessed over the past 18 months, Q2 supply is down 26% year-on-year to stand at 25.2 million sq ft. Despite these figures, which include speculative warehouse space due for practical completion by the end of Q3, the market currently exhibits the lowest level of availability on record. This equates to a vacancy rate of 4.3%. When analysing supply by number of unit and size band, only three warehouses over 500,000 sq ft are available (compared to six in Q2 20), and 80 assets in the 100-199,000 sq ft bracket on the market (compared to 100 in Q2 20).
Number of units available by size band and total supply
Source: Colliers - Note: Includes spec schemes with pc due in Q3 21
The good news is that investors and developers are building, and there are just shy of 60 planned deliveries of units over 100,000 sq ft from Q4 21 through to 2022. Not only will this ease the current situation but will also provide much needed space for the future as we expect the strong occupier demand to persist for at least the entirety of 2022 as occupiers continue to optimise their logistics networks. According to developers announcements, 2021 will see a total of 10.9m sq ft of new supply, however circa 45% of this space is either been pre-let or is under offer.
Investment activity across standard industrial and distribution warehouse assets in 2021 has continued where it left off at the end of last year. Provisional figures for H1 2021 saw circa £7bn invested in the sector, a new six monthly record for H1. We expect this figure to approach, if not surpass the £7.5bn mark as more transactions are validated.
In terms of investor activity, overseas buyers accounted for nearly half of the total transacted over the first six months of the year. North America headquartered investors led the pack with Blackstone remaining extremely acquisitive as highlighted by the purchase of the Albion Portfolio from Westbrook for £282.5m at a net initial yield (NIY) of 5.95% and the acquisition of the InfraRed’s Vantage portfolio for £186.5m at a NIY of 5.02%. Similarly, BentalGreenOak acquired seven logistics assets, totalling 2.18m sq ft from Morgan Stanley Real Estate for £303m at a NIY of 5.5%.
This strong buyer appetite continues to fuel further yields compression nationally. The latest quarterly MSCI data for Q1 2021, shows the lower MSCI quartile national net initial yield and equivalent yield at 3.6% (-9 bps q/q) and 4.1% (-12 bps q/q), respectively. We expect further yield compression over the next eight to 12 months due to accommodative monetary policy and strong buyer competition chasing limited opportunities.
UK industrial investment volumes (£m)
Source: Property Data, Colliers
Industrial yields – Lower quartile analysis (%)
Head of Industrial & Logistics