Garbe: act now to pick up good deals in UK Logistics market

Now is the time to invest in the UK logistics market, delegates heard at at Real Asset Media’s European Logistics Property Markets: Has the Investment Market Bottomed Out? briefing, organised in collaboration with Garbe, which took place online recently.

Chris Hornung, Country Head & MD UK, GARBE

“We’re very confident that we are at the bottom of the market and it’s all the way up gradually from now on,” said Chris Hornung, country head and managing director of UK, Garbe Industrial Real Estate. “Those with confidence to act now will pick up the better deals, so we expect more activity on the investment side.”

2023 can only be described as a brutal year for the UK, with interest rates at a 15-year high and double-digit inflation. But 2024 is set to be a more positive year, as inflation rates have halved. The Bank of England kept interest rates on hold last week but they are expected to decline, if slowly, later in the year.

“The crucial factor is occupier demand,” said Hornung. “In the UK we’ve had a huge structural change. E-commerce penetration is 26%, the highest in the world, expected to increase to 30% by 2030.”

The impact of Brexit, geopolitical issues and the nearshoring trend are other positive factors for the logistics sector.

“Urbanisation is another huge trend,” said Hornung. “There are now one-hour slots for supermarket deliveries, which puts huge pressure on the system.”

The take-up of logistics space declined by 30% last year, but after three “stellar years” in 2020,2021 and 2022, it is now back to the pre-pandemic average.

“There’s a good spread of demand in the UK,” said Hornung. “Manufacturing sector’s take-up actually increased last year, there is the e-commerce factor and retailer Amazon just took another 2 million sq ft over three storeys, Tesco announced another 620,000 sq ft warehouse. Some fashion retailers have reduced their space, but the signs are mostly positive.”

Vacancy rates jumped to 6.5% in 2023 largely because of a lot of spec developments being completed. But at the top end scarcity of product remains an issue.

“Companies have moved to new assets leaving the old ones vacant,” said Hornung. “ESG has become a defining feature of the market. Sustainability has become the Number One priority for investors, developers and tenants.”

Even in a tough year like 2023 rental growth in the UK was 7%, and rents are expected to continue climbing, but only for ESG-compliant assets as the market becomes ever more polarised.

“The spread between prime and secondary rents is at the highest level ever in the UK, and in my view it will go even higher,” said Hornung. “It is becoming increasingly clear that secondary assets will be left behind.”