Historically, most rental growth models rely on macroeconomic variables such as consumer spending, GDP, unemployment forecasts and so on to then forecast rents into the future based on historic valuation-based indices. While such models certainly have merit linking the demand side drivers to rents, they have very little data covering the supply side metrics of a market, which arguably have a greater impact on rental levels in the logistics market.

Over the last two years, Savills has been creating a new forecasting model from the ground up, which aims to paint a clearer picture of the market in order to forecast rents, taking into account the prevailing market conditions at the time.

Our model can also be deployed in a consultancy basis, where we can work with clients to forecast rents in smaller geographies and for subsets of the markets, such as prime or secondary.

Key variables

Our rental growth model relies on three main components:

• Understanding future supply: using Savills held data and in consultation with Savills Industrial Agents, we create a picture of future land supply having regard to current and planned development proposals as well as sites which are under construction.

• Understanding future demand & availability: studying market-specific relationships between supply and demand, we predict future levels of net absorption and availability.

• Understanding & projecting rental movements: we study how average achieved headline rents have changed in the past based on a market’s historical supply and demand balance. We then use that relationship to project future rental change into the future.

The model uses all of the data that Savills has at its disposal to forecast average headline rents in a market for all units over 100,000 sq ft and does not differentiate prime vs secondary.

The model also allows for scenario-based analysis of future rents. For example, scenarios could be run whereby take-up is lower than expected, or speculative deliveries are higher than normal and the impact on rental levels can then be assessed.

Rental growth outlook to 2028

Moving forward, every year in December, Savills will release our annual rental growth forecasts for the logistics market for the next five-year period. The tables below detail our forecasts based on our baseline scenario and our more pessimistic scenario.

Our baseline scenario assumes that absorption will be below average in the coming years before rebounding later in the forecast period and that net deliveries will be lower than average in the early part of the forecast period. Our pessimistic scenario assumes that net absorption will be much lower across the forecast period, therefore, there will be elevated levels of vacancy in most markets for the next five years.

Taking the North West as a good example demonstrates how the model adapts well to the prevailing market conditions. Historically, the North West market, whilst one of the core logistics markets in the UK, has seen a dominance to existing unit take-up rather than build to suit. This is driven by the land supply, which remains constrained and therefore suggests that speculative deliveries will be lower than average and lower than other core regions. However, should net absorption increase over the forecast period, supply and vacancy will fall, which, in turn, will put pressure on average rents.

Savills average annual logistics rental growth forecasts 2024–2028

Our forecast scenarios by region to 2028 are presented below.

Further Information

Big Shed Prospects 2024

The bull view

The bear view

The agents' view

Key takeaways

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