2020 was a year of rapid change for the UK industrial property market due to the unique set of social and economic circumstances created by the impact of the C19 pandemic.
Existing trends, such as the rise of ecommerce and the need for supply chain elasticity, accelerated, while there was considerable disruption to the way businesses operate and their performance.
This disruption has made some institutional investors re-evaluate their strategy. Uncertainty around the office and retail sectors has led to growing demand from investors for industrial property as, in contrast, its underlying fundamentals improved over the year.
Although we are now experiencing a third national lockdown, we believe that the industrial property market trends which emerged in 2020 will continue to strengthen. However, there will be challenges to the overall business environment due to the pandemic and the ongoing implementation of Brexit.
Demand for industrial is at record levels
Demand for industrial and warehousing space remained robust throughout 2020. The Q3 figures from the RICS commercial property survey 2020 showed that occupier demand increased across the industrial sector, shown by a net balance of +22 per cent of respondents reporting a pick-up in demand.
This contrasts with a net balance of -73 per cent drop in occupier demand for retail space and -66 per cent reduction in occupier demand for offices. An increase in demand from retailers who need industrial space to facilitate their growing ecommerce models is driving this outperformance. Supply chain elasticity to meet consumer demand for rapid last-mile delivery has become a necessity.
Statistics from the ONS show that ecommerce has trended towards a higher percentage of overall retail sales over the past 10 years, rising from 7.1 per cent in January 2010 to 20.1 per cent in January 2020. This trend accelerated dramatically during the pandemic and the impact of strict lockdown measures, with the percentage of sales peaking at 32.8 per cent in May. Although the proliferation of e-tail has cooled slightly since then, the acceleration is significant and saw multiple years of growth within months.
Take up rates for industrial property hit record levels in H1 of 2020, reaching 22.4 million sq ft, 66 per cent above the long-term average, according to Savills’s Big Shed Briefing. By the end of 2020, take-up of industrial space (units of 100,000 sq ft +) is set to exceed 50 million sq ft, a record year for the sector.
A green revolution for the UK
There is growing pressure for the UK to improve its sustainability and this is reflected in the UK Government’s 2050 zero carbon target, legislated in 2019.
The Government has recently upped the ante by moving forward the date by which the sale of new petrol and diesel vehicles will be prohibited from 2040 to 2030. For the industrial sector, this means there will be a greater focus and demand for developments that can provide EV charging for cars and delivery vehicles. Chancerygate is already ahead of curve when it comes meeting the requirements for electric vehicle charging points. For over four years, we have installed charging points to all our developments as part of the move to more sustainable methods of travelling.
There is likely to be increased expectations from occupiers and investors that new industrial developments have good sustainability credentials. This will be a long-term trend shaping the future of the industrial property sector and the type of schemes it will deliver long into the future.
Its impact is being felt now, and the green revolution and sustainability demands will be front of mind for the industry throughout 2021.
Brexit and beyond
Following the post-Brexit trade agreement between the UK and EU, the short to medium-term future for the industrial property sector looks positive. The fundamental trends underpinning demand (for example, ecommerce) in the market look unlikely to be impacted.
In the longer term, the UK’s new relationship with the EU creates ongoing negotiations on all matter of subjects, including trading conditions. Future changes to the trade agreement might increase costs and disrupt supply chains. If this happens, it would be likely to see businesses looking to hold increasing volumes of stock in the UK. This will inevitably increase demand for warehousing space.
There is also a possibility that anticipated, or indeed actual, disruption could lead to manufacturers bringing more of their end-of-line processes onshore.
With the initial position regarding the Brexit trade deal now clarified, its impact will become more evident in 2021 and there will be further opportunity for the industrial sector to support the changing needs of businesses.
Looking forward – a positive picture
2020 was been a turbulent year, but one during which the fundamentals underpinning the strength of the industrial property sector have grown stronger. The third lockdown and tightening of restrictions will create further social and economic challenges, but I anticipate sustained growth within the industrial property sector.
Coming out of the other side of the pandemic, the drivers of demand for industrial property will continue to gain momentum and this will gain interest in the sector from institutional investors.
These market trends mean institutional investors are increasingly looking towards industrial property as an asset class. Industrial property also offers good yields in a generally low-yield environment and, since it is underpinned by demand that looks set to sustain in the medium to long term, it is relatively risk free compared to other commercial property options, such as offices and retail.
Overall, our outlook for 2021 is very positive. We are excited by the direction the market is taking and have recently invested in new sites across the country in Edinburgh, Dagenham, Peterborough and Leicester, which we look forward to bringing forward in 2021.
Demand for high quality industrial space is here to stay. At Chancerygate, we are looking forward to continuing to innovate and further evolve our product to meet the needs of occupiers in the year ahead.
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: email@example.com.