2022-03-29-莱坊-UK_Logistics_Outlook_2022_9页_1mb

UK Logistics Market Outlook 2022 Summary

Core Content

The UK logistics market is undergoing significant transformation driven by e-commerce growth, urbanization, and evolving sustainability and resilience requirements. Key trends and factors influencing the market in 2022 include:

• E-commerce and Urban Logistics: The expansion of online retail and the need for efficient last-mile delivery networks are increasing demand for logistics space. Last-mile facilities account for 20-25% of total warehouse footprints, and each additional £1 billion in online retail sales requires approximately 320,000 sq ft of last-mile space. Q-commerce is also expected to grow, with operators moving towards larger distribution hubs and leaner operations.

• Rising Costs and Rental Growth: Occupier costs, including rental prices and labor, are on the rise. UK industrial rents are expected to grow by 6.7% in 2022, with London, South East, and Eastern regions seeing the strongest increases. This growth is supported by supply/demand imbalances and limited industrial land availability.

• Inflationary Pressures: Industrial land values have surged by 42% in 2021, driven by inflation and material shortages. Construction material and labor costs remain elevated, with steel prices rising 59% and tender pricing expected to continue outpacing inflation.

• Labor Market Challenges: The tightening labor market and wage increases are pushing occupiers to look for locations with better access to labor, potentially expanding the logistics geography beyond traditional hubs.

• Business Rates Revaluation: The next revaluation is set for April 2023, which will impact rental growth and investor returns. Prime rents have increased by 29.9% since the last revaluation, leading to a significant uplift in business rates.

• Investor Trends: Investors are increasing their exposure to the logistics sector, with UK funds allocating 39.7% of their portfolios to logistics and industrial in Q4 2021. Mid-length leases (10-20 years) are seen as offering the most attractive risk-return profile, while long-income assets are preferred for stability.

• Sustainability and Resilience: Rising sustainability standards are pushing operators to adopt green energy solutions and EV charging facilities. Prime yields are now around 3%, making sustainability a key factor in protecting exit values.

• Supply Chain Risks: Geopolitical tensions, especially the war in Ukraine, are increasing supply chain risks and prompting firms to diversify suppliers and increase inventory levels. Energy and transportation costs are expected to rise further, driving the need for energy-efficient and resilient operations.

• Energy Crisis: Energy prices are expected to rise significantly, with gas prices forecast to increase by 92% in 2022. Onsite energy generation and storage are becoming more critical for logistics operators.

• Vertical Farming Growth: The war in Ukraine has highlighted food security concerns, leading to increased interest in vertical farming as a means to reduce reliance on external suppliers and environmental impact.

Main Points

• E-commerce growth is driving demand for urban logistics and last-mile facilities.
• Rental growth is expected to continue, with the strongest increases in London and surrounding areas.
• Inflationary pressures are affecting both land values and construction costs, increasing development expenses.
• Labor shortages are influencing occupier strategies and the geography of logistics operations.
• Business Rates Revaluation will impact rental growth and investor returns, particularly in the UK.
• Investors are increasingly favoring mid-length leases and long-income assets for stability and returns.
• Sustainability is becoming a key criterion for investors and operators, with a focus on green energy and ESG standards.
• Supply chain resilience is a growing concern, prompting diversification and increased stock levels.
• Energy costs are rising, pushing operators towards more self-sufficient energy solutions.
• Vertical farming is gaining traction as a response to food security and environmental concerns.

Key Information

• Last-mile logistics: 20-25% of total warehouse space, with each £1 billion of online sales requiring 320,000 sq ft.
• UK industrial land values: Rose 42% in 2021 and more than doubled over the past two and a half years.
• Tender pricing: Increased by 4.9% in 2021 and is expected to rise by 4.4% in 2022.
• Average warehouse operative salary: Rose 6.8% in 2021, compared to -6.4% for all jobs.
• Prime yields: Now at c.3%, with investors prioritizing sustainability to protect exit values.
• Rental growth forecast: 6.7% for 2022, with industrial rents expected to outpace retail and office sectors.
• Business Rates Revaluation: Expected to significantly increase rates due to strong rental growth.
• Yield compression: Most pronounced in long-lease assets, with prime yields dropping from 4.00% to 3.50-3.75% over the past year.
• Green finance: ESG considerations are influencing real estate financing and development strategies.
• Geopolitical risks: The war in Ukraine is exacerbating inflation and supply chain issues, prompting strategic shifts in logistics and energy planning.

Conclusion

The UK logistics market is set for continued growth and transformation in 2022, influenced by e-commerce expansion, rising costs, and a heightened focus on sustainability and resilience. Investors are increasingly looking for mid-length leases and long-income assets to balance risk and return, while operators must adapt to higher rents, limited land availability, and evolving labor and energy demands.