The last 18 months have had a significant impact on the shape of logistics in the UK. First, there’s ‘the B word’, followed by COVID-19. These factors put pressure on the logistics sector by affecting delivery times and increasing demand for delivery services, with online sales accounting for around 30% of retail sales.
Current global supply chains are increasingly fragile – highlighted by the recent blockage of the Suez Canal and difficulties in the distribution of COVID-19 vaccines globally. In response to these factors, UK vacancy rates (how much space remains unoccupied in the UK) for logistics has dropped to 5.4%, according to Savills, showing that companies are looking to reinforce their supply chains to make them more resilient (https://bit.ly/33MLDq8)
Given this demand, independent economic forecasting house, RealFor, predicts an average increase in rents of 2.7% per year until 2025 for industrial and logistics space. Comparing this to the expected changes in office rents (+1.2%) and retail (-1%) shows the strength of the logistics market.
From an investment perspective, the world of logistics has changed. Pressure on the retail and leisure sectors has left landlords struggling to collect rents from tenants, who have been unable to trade at normal levels (if at all). Those landlords are also unable to use their usual arsenal of recovery mechanisms, including forfeiture due to current COVID-19 legislation. This is contrasted with the boom experienced in the logistics sector, where rent collections have remained high.
Expected increases in rent and the high rent collections have made logistics space a desirable prospect, pushing prices up and yields down to 3.5%. (yield is equal to rental income divided by overall price. i.e. a £1m logistics property can produce annual rent of c£35,000).
What’s next for logistics?
With high streets struggling and many empty retail units, many think that this space is ripe for conversion into urban logistics centres, but any conversion will need planning permission to change the permitted use of the property from Class E to Class B8.
With plans to require all properties to reach an Environmental Performance Rating of B by 2030, there is much work to do to upgrade existing properties to bring them up to the required standard. While these plans will reduce the energy requirements of those properties (and therefore the cost of running them) landlords and tenants will need to work together on how, when and what works can be carried and who will pay for them.
We anticipate that new warehousing and logistics centres in Northamptonshire will continue to grow, placing further challenges on landowners, developers, and new tenants.
Michael Goldfinch is the latest addition to the Wilson Browne Commercial Property Team, a Legal 500 recognised team (and Team of the Year 2019 at the Northamptonshire Logistics Awards) with a wealth of experience advising the logistics sector, whether it be short-term access requirements, new leases, assignments or lease extensions through to freehold purchases or even the acquisition of land for the development of the client’s own bespoke logistics centre and agreements for lease to secure rental income.
Wilson Browne Solicitors continues to act for many local and national logistics firms, from Wizz Ground to UPN to Logistica and several in between. We’re all the help you need.
For more information, contact Wilson Browne Solicitors on
0800 088 6004 or visit www.wilsonbrowne.co.uk
