Nearly 1 million m2 (10.1 million sq ft) of speculative logistics developments were announced this year in the UK, a 134% increase on the five-year average, according to new research from broker Savills.
Thanks to continued demand from across the sector, the broker believes that the market can absorb this level of new stock.
'For those who witnessed the last recession back in 2008, there is still residual nervousness around speculative development,' commented Kevin Mofid, head of industrial research at Savills. 'However, 10 years later we are looking at a very different landscape where vacancy rates are as low as 3% in and around London and the South East and there is simply not enough supply to satisfy the current demand. Assuming occupier demand doesn’t fall dramatically and there isn’t a significant increase in second hand supply, we believe that this is the perfect level of development to sustain the market moving forward.'
Average take-up has almost doubled in the past nine years, increasing from 16 million sq ft to around 30 million sq ft in 2018 to date. This can largely be attributed to the shift in consumer behaviour and the significant growth in online retail during this period. As a result, vacancy rates have remained low across the UK, averaging 6%, despite the notable increase in speculative development.
Looking back to 2016, a record year for the sector, Savills research found that 72% of all speculative development was let within a 12-month period with an average nationwide void period of just six months. While 16% of stock remained vacant, this is likely due to the buildings not meeting occupier requirements in the market at that time.
Richard Sullivan, national head of industrial & logistics at Savills, added: 'We believe that the current level of speculative development remains just right to fulfil outstanding demand. However it is important that we continue to respond to occupier requirements and provide the right space at the right time and in the correct locations. Vacancy rates of up to 10% can be tolerated and in fact will likely redress the current rental imbalance we are currently experiencing in supply starved markets.'
