(Commonwealth) _ The UK may require more than 112 million sq ft of new industrial and logistics floorspace in the next five years, equivalent to over 1,700 football pitches, as estimated by global property adviser Knight Frank based on current capacity utilization rates. This heightened demand is attributed to the UK’s expanding population and increasing reliance on distribution and manufacturing hubs. However, the shift in manufacturing toward high-value sectors and the rise of automation in manufacturing and distribution may alleviate pressure on the UK’s industrial and logistics stock. Oxford Economics predicts a rise of 958,640 dwellings in the UK over the next five years. London is anticipated to experience the most substantial growth (6.7% vs. current stock), followed by the South East region. Knight Frank’s Future Gazing report emphasizes that this growth will lead to a significant increase in delivery addresses requiring service from logistics facilities. The increasing urban population will further strain industrial and logistics land in UK towns and cities. By 2033, it is expected that 85.6% of the UK population will be urban, compared to 84.5% today and 82.1% a decade ago. The ongoing trend toward city living in the UK will drive higher demand for urban industrial and logistics space in the foreseeable future.
The evolution of work, shopping habits, and leisure activities is significantly impacting and reshaping the demand for industrial and logistics facilities in the UK. Technological advancements, digitalization, and the growing preference for online shopping and faster delivery times are expected to increase online retail penetration rates from 26.6% to 29.1% by 2028. The surge in online retail sales and the ensuing demand for business-to-consumer deliveries are major contributors to the need for distribution and fulfillment hubs. Knight Frank estimates that an additional 37 million sq ft of logistics space is essential to accommodate the growth of e-commerce over the next five years. Both physical and omnichannel retailers are increasingly relying on industrial and logistics properties to fulfill click-and-collect orders and manage returns. While physical retail requires approximately one-third of the warehouse space compared to e-commerce, it is anticipated to drive 4.7 million sq ft of new requirements over the next five years as total retail sales volumes increase.
In the manufacturing sector, which has witnessed an 11.5% rise in output over the past decade and is projected to grow by an additional 4.3% by 2028, there is a demand for an extra 33.8 million sq ft of logistics space based on current capacity utilization rates. The near-shoring and re-shoring of supply chains, driven by geopolitical and macroeconomic factors, may further boost manufacturing output. However, the shift toward high-value manufacturing sectors, such as computer, electronic, and optical products, might moderate additional requirements. The service sector, constituting 16% of occupied industrial floorspace, is emerging as a prominent logistics occupier in urban industrial markets. The demand from catering, cleaning, vehicle maintenance, and media production companies is challenging to meet due to limited well-located, cost-effective city-center commercial premises. The service sector, already a dominant force in the UK economy, accounting for 81% of all UK commercial output in 2022, is expected to experience robust growth, with output forecasted to rise by 6.7% nationwide by 2028. This expansion is projected to necessitate 36.5 million sq ft of new industrial and logistics space. The expansion of the remaining segments within the industrial and logistics occupational market is closely intertwined with the growth of the retail, service, and manufacturing sectors. This correlation suggests that this sector of the market is poised to experience similar rates of growth in the upcoming years. The cumulative impact of these factors is expected to raise the projected amount of industrial and logistics floorspace required per dwelling in the UK from the current 109 sq ft to 111 sq ft per dwelling by 2028. Nevertheless, the escalating demand for logistics space, coupled with limited new space supply over the past decade, has resulted in increased rents and strained the availability of existing stock. Since 2013, occupied industrial floorspace has surged by 17%, leading to a decline in vacancy rates from 9.2% to 5.2% during the same period. Market rents have experienced a 63% average increase across the UK over this timeframe, with prime rents (units over 50,000 sq ft) nearly doubling (+93%).
