Future Space 2025 report

Developers remain committed to building new warehouses, whilst occupiers spent most of last year reporting under-occupancy, with ‘grey space’ a familiar term to describe the empty racking on display at many operational sites. There is no doubt that the logistics sector is evolving, balancing growth opportunities, cost pressures, and sustainability goals. But economic uncertainty remains a key challenge.

“Future Space 2025”, a recent report from Tritax Big Box and Savills, launched at the end of January, spelt out the different sentiments of various players in the industrial and logistics property market. Admittedly, warehouse occupiers saw market conditions as being more favourable than a year ago, especially some retail occupiers, who said they were planning to increase space in the next two years. But nearly two-thirds cited labour costs as a key issue and sentiment was generally downbeat. The more cheerful market assessment came from investors and developers, although they too highlighted challenges, particularly power availability, construction costs and planning permission.

Companies are rotating and consolidating spaces rather than massively expanding, leading to weak net absorption – the shift in overall tenant demand, relative to the vacant square footage – and growing differentiation between prime modern stock, which remains in demand, and older stock, which presents a much greater vacancy risk. This is partly explained by the priority accorded to decarbonisation: electrification of fleets and alternative fuels are seen as key and newer buildings are more likely to support these initiatives. Even though few developers install EV charging for commercial fleets as standard, the civils works are more likely to be in place in modern developments, making a retrofit project easier.

According to the “Future Space 2025” report, most investors expect rising investment volumes, but do not anticipate significant shifts in prime yields – rental income as a proportion of the building’s purchase price – which are expected to remain around five percent. And core locations in the South-East, Midlands and London remain the top investment targets.

Optimism is returning, as sustainability concerns, the adoption of technology and building in more supply chain resilience drive demand for warehouse property. But occupiers remain the least confident, potentially limiting leasing activity. In last year’s Budget, the UK Government announced an increase in employers’ National Insurance Contributions (NICs) from 13.8% to 15% and a reduction in the threshold at which these contributions are payable. Both of these measures come into effect at the new tax year, in a few weeks’ time. Expected to raise £25 billion per year (a figure disputed by the Institute for Fiscal Studies), the government claimed at the time that NIC measures would not detrimentally affect ‘working people’, but the consequences are certainly far reaching. UKWA members are encouraged to book a place at our National Conference on 5th March. It is only by sticking together that we can get a better deal for our sector.

Clare Bottle

UKWA, CEOThe post Future Space 2025 report first appeared on Warehouse & Logistics News.