New demand, affordability and ESG: 2022’s UK industrial property sector trends

Author:
Richard Bains Managing Director
020 3582 8072
Read time: 5 mins
Category: Innovate

Chancerygate has experienced at first hand the extraordinary growth in occupational and institutional demand for industrial space over the past couple of years.

According to research by Savills, 2021 saw more than 50m sq ft taken up for the second year running, a record for the sector. Consequently, vacancy rates across the sector have fallen to 2.9 per cent, so what does 2022 have in store for our specialist sub-sector of urban logistics?

New industries, new demand

Although ecommerce is the most widely reported dominator of take up statistics, and it is most definitely a key driver of current demand for industrial space, there is also very strong demand from numerous other industries which will continue to grow and expand in 2022.

In 2021 we have disposed of units on Chancerygate schemes to traditional occupiers such as trade counter, food producers and third-party logistics operators but also newly established occupiers of industrial units such as last-minute grocery delivery companies and ecommerce led distributors

The wider sector is also benefiting from occupiers such as data centres, gigafactories and cold store facilities which are all taking up land / units that would historically only have been of interest to more traditional users. The gigafactory to be built in Blyth, Northumberland, to make electric vehicle batteries. will create 3,000 jobs on site and around 8,000 in the supply chain.

Many of these supply chain businesses will require industrial or warehousing space in smaller units. This is demand for industrial accommodation in the UK that did not exist five years ago.

Prioritise and protect industrial allocations through the planning system

The shortage in supply and huge increases in demand is expected to begin to have a negative impact on UK plc unless there is a significant uplift in speculative industrial development. That, though, is easier said than done.

To make this happen there needs to be an urgent review of the planning process from the bottom up. It must be made quicker, more efficient and, ultimately, more effective to facilitate development which will, in turn, create and protect jobs.

Allocations for industrial development need to be ‘baked in’ to local plans to ensure they are considered part of the economic infrastructure by local authorities. This would ensure land is designated for employment and existing employment land is protected at a strategic level.

Cost conscious

Build costs have noticeably increased over the past couple of years and this will remain a challenge that needs tightly managing in 2022.

No sooner do supply chain issues seem to slightly ease than we are hit with increases across other operational costs.

The well-publicised hike in energy costs will have a significant impact, whilst labour costs and availability and the ban on the use of red diesel will all keep the pressure on prices in 2022. We are, however, cautiously optimistic that the rate of cost inflation will reduce over the next few months.

Rising rents

The supply and demand dynamic is having a significant impact on rents which rose at record rates in 2021.

Rents for inner London multi-let industrial space rose by as much as 36 per cent in the first three quarters of 2021 and, on average, upwards of 20 per cent nationally, according to Gerald Eve’s latest multi-let report.

Whilst for investors and developers rising rents are fundamental to offsetting the impact of the rise in build costs, the rate of rental growth, if sustained, will shortly start to cause affordability problems for some occupiers.

We expect to see the rate of rental growth moderating this year. However, the historically low levels of supply and, in particular, the demand for new Grade A space with strong ESG credentials will mean that rents will continue to rise albeit we expect the rate of growth to differentiate between newer and older space.

ESG everywhere

Strong ESG credentials have been important to institutions for some time and are becoming increasingly so for occupiers.

All developers have a commercial and societal obligation to ensure they are doing their best to deliver product which meets the highest ESG standards. We must strive to create positive economic impact to the local community and a positive environmental impact through our developments.

We will be focusing on different aspects of ESG in various articles to be published on Gateway throughout 2022 and giving our insights and thoughts on this topic.

Reasons to be cheerful

Although there are certainly challenges to be managed, the outlook for the UK industrial property sector in 2022 is exciting.

Demand for industrial property is increasing, but supply is subject to various constraints. The occupiers of our schemes represent a broad mix of sectors. Many of them are SMEs, and they represent the engine room of UK plc.

We are totally committed to providing them with Grade A accommodation which enables them to be best placed to grow their businesses for the benefit of local communities and the wider economy.

From Chancerygate’s perspective, as the UK’s largest multi-let industrial developer, we are not immune to any of the challenges. However, we strive to think and act entrepreneurially in mitigating these challenges.

In 2022, we’ll be delivering 1.7m sq ft across 15 schemes in strategic locations across the UK ranging from Edinburgh to Bournemouth. This is the highest amount of space we will have ever delivered in one calendar year.

At the same time, we will continue to implement our nationwide growth strategy, particularly focusing on the South West and into South Wales following the opening of our Bristol office last October.

We are looking ahead to meeting the challenges that 2022 brings with a good degree of confidence.

Chancerygate offers industrial and warehousing units freehold or leasehold in strategic locations across the UK. To view our latest developments, click here.

To find out more about how we can help with your industrial property requirements call Richard Bains on DL: 020 3582 8072,
M:
07880 727672 or E: rbains@chancerygate.com.

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