Spotlight on Logistics and Industrial
Logistics and Industrial is one of Wedlake Bell’s core Real Estate sector focuses. We act for many well-known industry sector participants and our real estate, construction and planning teams work together closely to provide an expert whole project service to Logistics and Industrial sector clients.
The Wedlake Bell team advises our clients on sales, acquisitions, agreements for lease, lettings and developments in the logistics sector and in respect of funding the same. The team’s experience ranges from smaller last-mile logistics hubs through to major “Big Box” developments.
State of the market in 2023
The last 20 years have seen a well-documented change in shopping trends from ‘bricks’ to ‘clicks’ (further turbo-charged by the COVID-19 pandemic), which has in turn driven the increased requirement for logistics and industrial properties, from ‘big box’ distribution warehouses required by online retailers, to the urban logistics hubs needed to satisfy last-mile deliveries. The sector has experienced an unprecedented boom period, with growth in values outpacing that seen in many other sectors.
However, wider economic uncertainty caused by geopolitical events such as the conflict in Ukraine, rising energy prices and soaring living costs has brought with it significant challenges. We have seen the Bank of England lift interest rates to control high inflation, which has in turn flattened capital values and dampened acquisitions and disposals. At the same time, construction materials inflation, supply chain shortages and rising energy prices have impacted construction and development work, making it a challenging environment for developers, especially those with assets in weaker secondary locations where increased costs may make development unviable in the short-term.
While this pattern may be expected to continue for the immediate future, are there glimmers of hope on the horizon?
Given the fall in capital values, we expect to see a continued drive to achieve rental growth through asset management initiatives including those designed to achieve higher ESG standards, which can only be a win for occupiers, investors and the environment alike. Many sector participants have highly automated properties and significant power requirements. ESG initiatives such as the installation of PV panels can help to futureproof those businesses, by facilitating access to affordable and sustainable power. We may also see a trend back towards open market rent reviews in new leases. With inflation outstripping income returns, index-linked rent reviews with caps and collars may become much less popular than we have seen in recent years.
The lack of new supply is likely to keep vacancy rates low, which in turn should increase competition and drive rental growth. Occupier demand still remains above the long-term average – COVID and Brexit led to increased demand from companies moving from “just in time” to “just in case” and take up by 3PLs has also increased, as some businesses look to outsource parts of their supply chains to maximise efficiency and reduce costs.
The early signs are that stabilisation of inflation, and possibly interest rates, may see a corresponding stabilisation of property prices and development costs towards the end of 2023, hopefully leading to an uptick in development and investment transactions. Like so much in the last few years, there is great uncertainty, but given the strong supply and demand dynamics in the sector, there is cause for cautious optimism.
Are you facing any of these issues? Our in-depth experience and understanding of the logistics and industrial sector leave us excellently placed to help you navigate any legal issues that might arise. Please get in touch to discuss how we can help.