With the lowest H1 take-up since 2013, it is tempting to suggest that the recent boom in market activity has run its course, but it is worth taking a short- and long-term view moving forward. Examining short-term market performance, Savills Research has created an index based on our data of every occupational requirement in the market. This index has a strong correlation to the level of take-up on a nine-month lag. It is therefore no surprise that H1 take-up has fallen as our index reached its lowest point back in late summer of 2022. The promising news is that our requirements index has rebounded in H1 2023, with a strong rise in the number of requirements over 500,000 sq ft. Should the correlation of requirements to take-up be maintained, we would expect the second half of the year to see a rise in the level of new leases signed.

Taking a longer-term view, it is clear that the key structural driver of increased online retail remains in place, along with new sources of demand from the manufacturing sector. The latest forecasts from Statista suggest the online retail penetration rate in the UK will rise to 35% by 2027, with growth coming from the fashion, food and electronics sectors.

Demand from manufacturing-related occupiers continues to rise as companies look to re-risk their supply chains, although we view this trend as more of a slow burn given the complexities of changing global manufacturing supply chains.

Lastly, as the population of the UK continues to grow, so will the demand for warehouse space. Indeed with the UK population set to reach 71m by 2033, the need to deliver more housing becomes paramount. Based on research from the BPF, which states that each new household requires 69 sq ft of warehouse space, we estimate that an additional 224m sq ft of space will be needed by 2033 just to meet the needs of our growing population.

BUILD COST AND PROGRAMME

As recently reported in parts of the property press, the Building Research Establishment (BRE) has withdrawn its certification from Kingspan Insulated Panels Kingspan is a significant supplier of insulated cladding across the Industrial and Logistics sector. This means it will no longer have Loss Prevention Certification Board (LPCB) certification, which is an industry-recognised standard for investors, insurers and occupiers. While stakeholders ascertain the implications of this move by the BRE, it is possible in the near term that this will create further volatility in build costs and programme length.

Notwithstanding the above, with development announcements falling, it is likely that the build cost inflation we have witnessed over the last three years will start to abate. As things stand, we are seeing the cost of many raw materials, such as steel, fall, but this is being off-set by continued rises in the price of labour, which is reflected in the Savills ProgrammE and Cost Sentiment Survey (S.P.E.C.S) which is yet to see a downward trend. As contractors start to compete for less work, competitive tendering situations will ensure that costs begin to fall, which, in turn, may improve scheme viability and allow new speculative schemes to come forward.

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