2023-04-26-莱坊-UK_Logistics_Outlook_2023_12页_1mb

UK Logistics Real Estate Market Outlook: 2023

Key Expectations

1. Pricing Stability but Downside Risks Remain

   • Prices have stabilised, with prime yields returning to ~4.5%.
   • Secondary assets and markets face sharper risks due to credit tightening and bank caution, potentially leading to yield softening.

2. Rental Growth Moderates but Returns to Pre-Pandemic Levels

   • Expected rental growth in 2023: ~4.2% (UK Industrial sector), below recent highs but aligns with pre-pandemic averages.
   • Rent-free periods normalise, reducing incentives and moderating growth.

3. Vacancy Rates Remain Low

   • End-2022 vacancy: 3.3%, expected to rise slightly as new supply enters, but remain below frictional levels (~5-8%).
   • Driver for continued rental growth.

4. Development Activity Declines

   • Reduced supply in 2023 due to high build costs, elevated financing expenses, and softer exit yields.
   • New schemes offset recent tightness, but growth may soften post-pandemic recalibration.

5. Operational Costs Rise

   • Energy bills, business rates, and corporation tax increases strain occupiers.
   • Energy-efficient facilities may gain competitive advantage and mitigate costs.

6. Take-up Returns to Pre-Pandemic Norms

   • Annualised take-up in 2023: ~36 million sq ft, below pandemic peaks but matching historical averages.
   • Growth driven by non-retail sectors (manufacturing, logistics), reshoring, and diversified demand.

7. Investment Volumes to Improve but Remain Muted

   • Core assets (London, Midlands, Manchester) attract investment; non-core units face vacancy risks.
   • Tighter lending conditions and higher financing costs limit leverage, keeping investment volumes lower than pre-pandemic levels.

8. Secondary Assets at Risk

   • Lower liquidity and weaker covenants make secondary properties more vulnerable to vacancy and yield compression.

9. Sustainability and Environmental Factors

   • Climate change risks and ESG mandates influence investment, with focus on green buildings, EV infrastructure, and energy efficiency.
   • Stranded assets projection from climate transition impacts valuations.

10. Long-Term Growth Driver: Online Retail

    • E-commerce projected to grow 29.1% by 2027, requiring significant warehouse space expansion.
    • Logistics sector remains a key inflation hedge and investment destination due to its resilient fundamentals.

Lease Structure Considerations

• Index-linked rent reviews (CPIH, RPI) provide stability but outperformed market rent reviews (OMRR) over the past decade.
• Caps and collars protect landlords, while OMRRs capture market upside.

Opportunities

• Operationalising Assets: Large investors expanding into logistics platforms to drive operational efficiency.
• Green Building Retrofits: Enhancing sustainability credentials to attract tenants and align with ESG mandates.
• Regional Expansion: Opportunity in secondary markets post-core consolidation, though risks remain.

Headline

• UK logistics real estate market stabilising after 2022 repricing; 2023 marked by slower growth, tighter supply, and rising costs. Sector remains resilient, supported by e-commerce and inflation hedging potential, but investors must navigate elevated financing costs and sustainability challenges.