Promising prospects as UK logistics’ economic stars align

Last year was a tough one for the industrial and logistics real estate market in the UK, but Chris Hornung, MD, Garbe Industrial Real Estate UK is optimistic about 2024.

“2023 was a very tough year for a number of reasons, he told Real Asset Insight’s Richard Betts. At the macro level though, interest rates appear to have peaked and a fall is expected, inflation has come down dramatically and the election expected later this year is not expected to be disruptive. “It’s a much better picture going forward,” Hornung said.

At the micro level it is more about occupier demand and rental growth. E-commerce penetration in the UK is 26% and predicted to go to 30% by 2028. Nearshoring and the move from a just-in-time philosophy top just-in-case is also positive for the UK. Urbanisation is adding pressure and fuelling occupier demand.

“The key surprise for me is the takeup,” he said. Although 2023 was said to be a bad year, actually the figure was just short of 30 million sq ft and the average pre-covid was only just over that.

“That is very encouraging,” Hornung said. Furthermore, while Amazon had pulled back from the UK market, the company has just announced the acquisition of a 2 million sq ft unit from Segro in Northampton. “That’s a big boost. Amazon see the economy has now turned the corner here and they’re back on a growth trajectory.”

“But the good thing about the UK is we’re not just reliant on one sector,” Hornung added. About a third of demand is accounted for by 3PLs, a third by manufacturing and the final third is e-commerce retailers.

Plus, the UK has a very constrained land supply. Germany is one-and-a-half times bigger but the population is only 15% greater. “So per square foot per person there’s a lot more pressure here – we just don’t have the space to grow.”

Vacancy rates did increase over the last 12 months as a round of speculative development has been completed. But about a third of that has already been consumed and Hornung points out that, owing to their ESG criteria, a lot of existing occupiers are putting space on the market in order to upgrade and the old space is likely to be secondary stock.

“So I definitely see those vacancy figures dropping and all the major agencies and commentators have said the same,” he added.