It is extraordinary to think how much the world has changed since our last market update at the start of 2020. The personal and professional challenges resulting from the pandemic are unprecedented and, for everyone, the focus remains on staying safe and saving lives. With lockdown restrictions starting to ease it is also becoming more evident how important the UK industrial and logistics sector is to our daily lives and instrumental to our economic recovery.

In many respects supply chains have been tested to the limit, initially to feed the nation and provide for essential services to cope with the pandemic. Examples include establishing temporary hospitals, sourcing and distributing PPE and keeping food shelves stocked. Consumers have relied on all other non-essential purchases being satisfied via online platforms.

As we continue to adapt to this new normal, some interesting statistics are emerging with online sales now accounting for 33% of all retail sales, up from 21% at the start of the year. Consequently, logistics real estate is benefiting from this increase, reflected in our half-year take-up figures. This early boost to our economy is welcome, but we must be mindful that there is still much hardship and disruption to endure as the country emerges from lockdown. Our sector has a vital part to play in getting the country back on its feet.

Take-up

Given the global turmoil created by Covid-19, it is remarkable to report that take-up for H1 2020 has reached 22.4m sq ft, this is the best H1 performance ever recorded and is 38% above 2019 and 66% above the long-term average. Scratching the surface of the data, however, shows that 36% of the take-up has been to Amazon and a further 11% of the take-up has been for deals where the lease is for less than 12 months due to Covid-19.

It is also important to mention that 6.8m sq ft of the take-up relates to multi-level Amazon units where we have recorded the upper floors as take-up. Notwithstanding this, if we were to include those units at just their footprint, take-up would still be the second highest H1 ever.

Supply and Pipeline

Since the start of 2020, supply has risen by 0.34m sq ft and now stands at 36.2m sq ft, reflecting a vacancy rate of 6.58%. We have seen a slight fall in the amount of BTS which has meant the level of Grade A supply has fallen from 20.4m sq ft to 18.8m sq ft, now accounting for 52% of supply, a fall of 3%.

Given the economic climate, a key metric to monitor will be the levels of second hand supply as this could point to a rise in tenant failure. Whilst too early to draw a definitive trend, the level of supply for Grades B and C has risen by 9% to 17.46m sq ft. It is likely that Grade A supply will continue to decline as just 0.9m sq ft of speculative announcements were made in Q2, the lowest level since the first quarter of 2017.

_{Read the articles within Big Shed Briefing below.}