Prime Warehouse Rents Continued to Rise in 2023 Going up Eight Per Cent Year on Year

Posted by Colliers on 14th February 2024 -

Colliers publishes its latest Rents Map analysis

Rents across the industrial and logistics sector continued to rise in 2023, despite the difficult economic headwinds, by an average of eight per cent year on year (y/y). 

According to Colliers’ Industrial & Logistics team’s latest analysis for their Rents Map, prime rents across the UK for large distribution warehouses (100,000+ sq ft) increased to £11 per sq ft, up eight per cent y/y. Meanwhile mid-box and multi-let units across the UK reached £14.50 per sq ft, up 6.3 per cent y/y. 

These rental rises came about despite a slow-down in take-up and an increase in warehouse supply.  Take-up of large warehouses exceeding 100,000 sq ft in 2023 totalled 24 million sq ft (5.7 million sq ft was taken up in Q4) a 36 per cent y/y decline, and a 14 per cent decrease on the 10-year pre-pandemic average (2010-2019). Supply reached 38.5 million sq ft (from a low of 20 million sq ft in 2022) however this is still below the pre-pandemic ten-year annual average supply rate of 45.2 million sq ft. 

Len Rosso, Head of Industrial & Logistics said: “2023 was a difficult market compared to the boom we’ve seen in recent years, however despite these tricky conditions the sustained occupier demand has resulted in a continuation of rental growth and a rise in land values in core locations. 

“While investors and developers have worked hard to deliver more quality prime warehouse space, following the glut of take-up over the pandemic period, supply remains constrained in most core markets due to the increased costs of construction and higher borrowing costs caused by inflation. This combination of difficulties for the market is what is spurring on these continued rental rises, which we anticipate will also continue during 2024 as we are witnessing a slow-down in the current development pipeline.” 

In recent months only a handful of new units broke ground according to Colliers, although there is currently 9.7 million sq ft of speculative space under construction, we anticipate prime supply constraints to begin again by the end of the year.  

Following a drop in land values at the end of 2022 to an average of £1.5 million an acre, during 2023 they rose by around 20 per cent, with growth driven by the strong performance in the prime markets of west and north west London. 

“Investors and developers are focusing their capital on well-located prime locations,” explains Andrea Ferranti, Head of Industrial & Logistics Research. “We’re continuing to see strong interest in the North West, core Midlands and west and north west London market. These areas exhibit a supply shortage with a compelling rental growth story, so the opportunity to secure land is coming at a premium.” 

“Looking ahead we think that 2024 will be another stop-start year of occupational demand,“ Rosso concluded. “Those who have to move because of lease events or contract expansions will be in the market, but until we see stability around household spending and credit conditions its unlikely that many occupiers will consider growth plans, and by the end of the year there will be a lack of warehouse options once again – resulting in another year of continued rental growth.”

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