The Savills requirements index continues to show upward movements, with a 15% rise in the second quarter of 2024, suggesting that a further 15m sq ft of take-up should be expected in the second half of the year. This would mean that total take-up for 2024 will exceed the 29.1m sq ft of space transacted in 2023.

There is a case to be made, however, that the risk to this forecast is on the upside and that conditions in the second half of the year will stimulate demand more than we expect. Firstly, with a new government in place, a period of political stability is expected. Whilst we wait to see how Labour will enact its manifesto, we can expect businesses to be more confident to make investment decisions now that the general election has taken place.

Consumer confidence remains robust, and as we head into the second half of the year, we can expect the Bank of England to cut interest rates, with Oxford Economics forecasting two inward movements by year end to bring the rate to 4.75%.

With requirements for units over 500,000 sq ft remaining 250% higher than where they were in Q1 2020, it is plausible we will start to see a rise in larger deals, which will have a skewing impact on the overall take-up numbers.

In the online retail sector, the engine room of growth over the last decade, there are signs of renewed optimism. For Amazon, at a global level, Q1 retail sales were up 12.5% YoY, and in the USA, it will add a further 43m sq ft to its network in 2024, a trend we expect to see in the UK and Europe as we move into 2025.

BUILD COST AND PROGRAMME

Whilst take-up at a nationwide level has increased by 44% YoY, 75% of this take-up has been for existing units, meaning that BTS remains subdued. If we combine this with a fall in speculative development announcements, it is clear that there is less construction of additional warehouse space being undertaken compared to recent years. It is, therefore, little surprise that we are starting to see evidence of softer build costs and additional capacity in the construction supply chain. 

This is reflected in the latest data from the Savills ProgrammE and Cost Sentiment Survey (S.P.E.C.S), which has shown that build costs in the logistics sector have started to fall from recent high levels. Indeed, for certain commodities, such as steel, we have witnessed a fall of c.33% since July 2022.

With requirements trending upwards, particularly for larger units, and with BTS viability increasing, we expect to see construction activity improve as the year progresses. We also expect to see continued interest from building owners in delivering comprehensive refurbishments to improve the ESG characteristics of older units to ensure assets are not stranded as occupier focus continues to revolve around better-quality units. 

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