Efficiency vital in warehousing sector

The fundamentals of the logistics and industrial warehousing sector remain strong, with low vacancy rates, good (albeit moderating) rental growth prospects and occupier demand from manufacturers and 3PLs helping to plug the gap left by the online retailers.

Claire Williams Industrial research lead Knight Frank

While the monthly figures show online retail sales to be down, the expectations remain for further long-term growth.

The occupier market faces headwinds, but a lack of supply is expected to support continued rental growth. The location and specification of facilities will be of increased importance.

Supply will remain tight, particularly for well-located, grade-A facilities. A buoyant occupier market in 2022 has left vacancy rates at just 3.3% as we begin 2023, which will support continued rental growth. However, the rate of growth will vary according to location and quality of asset.

The volume of new development has been curtailed due to inflationary pressures on materials and increasing financing costs. Developments not yet under way may be postponed.

The diversity of the occupier base will provide a breaker against the economic headwinds. Softening economic conditions will weigh on occupier demand in 2023 but not all occupier types will face the same exposure.

While discretionary consumer spending will be impacted by high inflation and a weakening economic outlook, firms focused on consumer essentials and discount retail will weather recessionary conditions much better, and there are many other factors supporting continued occupier demand. These include the need for holding more stock, the reshoring or onshoring of manufacturing and rising demand from less-traditional occupiers, such as vertical farms and data centres. There are some headwinds for the market. From April, occupiers will face higher energy bills and business rates. Business rates are set to rise substantially due to the strong rental growth over the revaluation period, with average increases of 34% across all sub-markets.

The current Energy Bill Relief Scheme comes to an end in March, to be replaced with a new Energy Bill Discount Scheme that offers a much lower level of protection due to the price cap being replaced with maximum discounts. Businesses must proactively consider how to manage energy consumption and costs.

Well-located, energy-efficient facilities that can help firms mitigate costs will be key to maximising efficiencies. Logistics operators with less-efficient facilities, or in secondary locations, may find it increasingly difficult to manage costs and operate competitively.

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