Given the sharp declines in vacancy across most of the regions we cover, and the strong current levels of take-up, attention has turned towards what rental growth should be expected in the medium term. The latest rental growth forecasts from RealFor suggest the wider logistics market should expect to see growth of 2.7% p.a until 2025. Whilst these macro-econometric forecasts take into account past performance and wider economic indicators such as GDP, employment and consumer confidence, they do not readily consider localised market conditions.

Given that vacancy has hit record low levels in many regions, construction materials are in short supply, and occupier demand remains at record levels, there is a clear case to suggest that actual rental growth will exceed the current forecasts.

In Yorkshire, for example, vacancy has reached a historic low of 2.35%, and take-up at the half-year has reached 6.7m sq ft, already exceeding the annual average. There is just 113,000 sq ft of Grade A space on the market, and whilst the developers are aiming to replenish the pipeline, the competition for these units will be fierce.

We expect this situation will accelerate rental growth over the next two years before dropping back over the latter half of the five-year forecast period.

Build cost and programme

The latest indicators from the Savills ProgrammE and Cost Sentiment Survey (S.P.E.C.S) demonstrate that that build costs and programme delivery time scales are expected to rise in the short term as the availability of cladding, steel and concrete negatively impact the delivery of new warehouse space. Globally, a perfect storm has emerged as the demand for raw materials has surged as lockdown restrictions have ended.

Manufacturers, however, are still playing catch up, having furloughed workers and reduced production. What’s more, for a short period, British Steel also stopped accepting new orders, only to reverse the decision while simultaneously raising prices by £100 per tonne, the second price rise in a little over a month. Whilst Savills is tracking 16.79m sq ft of speculative warehouse construction, some of these projects are being delayed, and some of the planned speculative announcements for the remainder of the year may have to be pushed back to 2022. Given the pressures in the supply chain and the lack of available contractors, developers should factor in the potential for tender price inflation and a significant delay to programmes.

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