Last mile boost as ecommerce to take 30% of UK retail by 2025

The boom in ecommerce sales in the UK will see the online portion of all retail sales rise from 27% to 30% by 2025 according to Knight Frank. The firm expects the consequence to be an additional £37 billion of online sales and a 12 million sq ft (over 1.1 million sq m) increase in the requirement for space.

And because online shoppers demand ever faster delivery times, logistics operators are required to hold stock closer to consumers. Knight Frank calculates that 23.5% of Ecommerce related space comprises last-mile delivery facilities.

The growing demand for urban logistics units has driven down vacancy rates sharply in urban areas. The UK-wide vacancy rate for units of less than 100,000 sq ft (9,290 sq m) in urban locations is currently 3.2% but expected to fall further.

The figure masks wide variation. While in Greater London, the vacancy rate for units under 100,000 sq ft is 3.1%, in Bristol it is 1.5% and in Edinburgh, Birmingham, and Manchester, less than 1%. The vacancy rate for all unit sizes over 50,000 sq ft is 5% as a comparison.

Lack of space has led to strong growth in rents for industrial assets across urban areas. Sheffield has the highest rental growth forecast at 7.8%. In east London boroughs Newham and Tower Hamlets, and south London boroughs Merton and Southwark, 7% rental growth is expected this year.

Capital allocations already exceed the total for 2020

Capital allocations to logistics have also increased, owing partly to the pandemic, and so far in 2021 have already exceeded the full-year total for 2020, with £10.6 billion invested and £13 billion expected for the full year.

It is not hard to see why. Knight Frank points out that total returns for UK industrial stock are more than other property sectors at 29.6% (year to September 2021) and higher in the South East.

Knight Frank partner Charles Binks, head of industrial and logistics, said: “The surge in demand for urban logistics space has been mainly fuelled by ecommerce growth, but also the need for supply chain resilience.”

He points out that the pandemic highlighted issues with just-in-time supply chain models, but this was further emphasised by the Suez Canal incident in March and more recent HGV driver shortages in the UK.