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INDUSTRIAL
OVERVIEW
2022
Figure 1 Annual change in prime rents – 2020
Source: Carter Jonas
0.0%
1.0%
2.0%
London
/M25
It is important to note that occupier demand remains broad-based and is not just being driven by online retail, with enquiries from a wide range of manufacturing and engineering firms, as well as medical and other specialist suppliers. We are seeing strong demand across the board, for example at Chancerygate’s scheme of 12 units at Chertsey Business Park, where half of the space is already under offer or let since achieving practical completion in November.
Midlands
South West
/ Wales
South East
/ East
Yorks & Humbs, NE, NW
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Andrew Smith SIOR
National
Partner
07919 326085
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3.0%
4.0%
5.0%
6.0%
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Mike Wilson
SIOR AssocMember
South East
Surveyor
07880 378174
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Caroline Penn-Smith
Midlands
Partner
07342 067831
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William Rooke
East
Partner
07899 081027
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Alison Williams
South West and South Wales
Partner
07917 041109
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Chris Hartnell
North
Associate Partner
07800 572007
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Jon Silversides
South Midlands / M40
Partner
07720 537141
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Frederic Schneider SIOR
International
Partner
07733 124489
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William Waterhouse
South East
Senior Surveyor
07789 113846
7.0%
UK average
Rents
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
Overview of demand
The industrial sector continues to enjoy a broad base of demand. The growth of e-commerce and supply chain challenges have been among the biggest drivers of demand growth for logistics space, and take-up remained exceptionally strong in 2021.
Prime rent and land value trends
Figure 1 Rental and land value growth rates
Prime Rent
UK prime industrial rental and land value growth
Source: Carter Jonas Industrial Index
2021
3 years to end 2021 (% per annum)
5 years to end 2021 (% per annum)
Prime rents
Land values
21.5%
33.6%
8.3%
17.8%
13.1%
6.1%
Source: Carter Jonas
Land Value
Our prime industrial index shows the impact of the supply / demand imbalance, with prime rents increasing by 21.5% and land values rising by 33.6% during 2021
Our annual research report providing insight into prime industrial rents and land value trends across the UK
The UK industrial and distribution market continues to be highly dynamic, and our 2022 update examines the latest trends and outlook for demand, rents, and land values. Data is derived from the Carter Jonas Industrial Index, which monitors values in 50 key markets across the UK.
Growth in online sales continues to support demand from 3PL companies and e-commerce retailers. There were several sizable transactions from this sector last year, such as Eddie Stobart taking just over 1.1 million sq ft across two equal-sized units at Mulbery Logistics Park in Doncaster, while DHL pre-let 700,000 sq ft at Axis J10 in Bicester.
Amazon has remained active, taking space totalling more than 4 million sq ft last year in locations including Lutterworth, Liverpool, Bristol, Milton Keynes, and Gloucester. However, the online retailer has not been as dominant as was the case in the previous year and has recently announced that its growth will moderate.
The often-overlooked open storage sector has seen strong demand growth over the last year, most notably for the highest quality ‘class 1’ sites which are available on leases of two years or more. The need for HGV parking, last-mile delivery services and distribution facilities to accelerate the flow of goods are causing demand to increase. These levels have been boosted further due to the lack of movement and parking space at many modern urban distribution warehouses within the M25 and in key UK cities. And this evolving asset class is likely to see huge demand in 2022 amid a shortage of sites.
While overall construction costs have increased by around 25%* year-on-year, material shortages are expected to persist in 2022 amid strong global demand, labour market challenges, as well as the knock-on effects of Brexit and the coronavirus pandemic. Larger developers are likely to be in a better position to weather ongoing construction material shortages and rising costs, due to well-established supply chains and better contracts than their smaller counterparts.
Such strong inflationary pressures, skills shortages, and shortages of materials have implications for the industrial sector with developers needing to worry about cost overruns and project delays. Both of these have the potential to push rents and land values even further and to pass the cost to tenants as supply remains tight amid high levels of occupier demand.
The Carter Jonas prime industrial index shows the remarkable impact that the supply / demand imbalance is having on prime rents, which increased by an average of 21.5% across the UK in 2021. However, even this stellar performance was greatly outpaced by the increase in UK industrial land values, which rose by an incredible 33.6% during the year.
These rates of growth are considerably above those achieved in 2020, when prime rents rose by an average of 2.7%, and land values increased by 8.7% across the UK. The last five years to the end of 2021 have seen continuous growth in values – prime rents increased by an average of 6.1% per annum, and land values rose by 13.1% per annum.
Industrial performance has therefore significantly outpaced inflation. CPI was 5.4% pa during 2021 and has averaged 2.5% per annum over the last five years.
40.0%
35.0%
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
1 year
3 years (% pa)
5 years (% pa)
Figure 2 Prime rent and land value index
CPI infation
Source: Carter Jonas
Prime rent
Land Value
200
180
160
140
120
100
index, end 2016 = 100
End - 2016
Mid - 2017
End - 2017
Mid - 2018
End - 2018
Mid - 2019
End - 2019
Mid - 2020
End - 2020
End - 2021
Mid - 2021
We have analysed rates of rental growth using five geographical areas, as shown in Figure 3. The market inside and around the M25 saw extremely strong prime rental growth of 49.3% during 2021, well above the UK average. Yorkshire & the Humber saw the next highest growth rate at 25.9%. The lowest rate of growth was in the South West and Wales, which still saw a well-above inflation 8.8%.
The increase in values continues apace and the market is moving ahead rapidly, particularly for land values. Where possible, our land values figures are based on comparable evidence. However, it should be noted that values are also based on the underlying tone and our market knowledge, to provide a view of the values that investors and occupiers would be prepared to pay.
Figure 3 Change in prime rents to December 2021
1 year
Source: Carter Jonas
5 years (% pa)
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
London / M25
South East / East
Midlands
South West / Wales
Yorks & Humbs, NE, NW
Outlook for pricing
With ongoing high levels of occupier demand, tight vacancies and potentially delayed projects, together with higher levels of general inflation and rising building costs, rents and land values will remain under upward pressure during 2022 and into 2023.
We therefore expect all major industrial markets to experience continued robust rental growth, with London positioned to outperform as growing demand for urban logistics and last-mile warehouses coincides with the lack of supply and the shortage of construction materials.
As rents continue to rise, affordability for occupiers will decrease further, and rising occupational costs will be exacerbated by the rating revaluation due in April 2023. Industrial rental values have outperformed the overall commercial market in the period up to the antecedent valuation date of April 2021, and therefore many industrial occupiers can expect to see an increase in their rating liabilities. They will need to build this into their budget equations when acquiring property today.
The sector’s positive rental growth story continues to encourage investors, who deployed a record amount of money, and more than £17.6bn (according to Property Data) was spent on industrials in 2021. Yields have compressed in tandem with growing investor demand and are now as low as 3% in regional markets for long-dated income and as low as 2% in some parts of London.
Looking at the year ahead we expect investors to embrace a greater level of risk, given tight pricing along with the industrial sector’s strong fundamentals of high demand, tight supply, and robust rent growth.
* Department for business and energy and industrial strategy
Prime rents are based on a 10,000 (GIA) sq ft brand new unit in a prime location, with 45-50% site cover (Greater London up to 65%) and 10% office content, and a lease term of 5-10 years.
Land values are based on land with an unrestricted planning consent for industrial use with a 45-50% site cover (Greater London up to 65%) and in a prime location.
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London
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London
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Bristol
Partner
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PRIME RENT AND LAND VALUE FIGURES
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Bristol
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Bristol
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Birmingham
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