Are you feeling lucky?

By Liza Helps, Property Editor, Logistics Matters

OVER THE twelve months to the beginning of the year, supply levels of warehouses over 100,000 ft2 plus in London and the South East have risen by 18%, now standing at 11.39 million ft2 across 66 units according to Savills most recent big box research.

“This increase is due to speculative development completions, alongside the return second-hand units to the market,” says Savills’ national head of industrial and logistics director Toby Green.

Holding similar statistics, Avison Young research pin points the availability of some 44 units between 100-200,000 ft2 alone across the wider southeast from Milton Keynes and Bedford through Essex, Kent, Surrey, Sussex, Greater London and the Home Counties.

Avison Young’s industrial sales and leasing principal John Allan notes: “A lot of the availability is Grade A space even if a third is second hand.”

Looking at a wider size range of properties from 50,000 ft2 upwards – taking in the majority of midbox units – Knight Frank’s most recent London and South East LOGIC research reports a supply of 17.2 million ft2 – a one-third increase of existing units since the start of 2024.

“It should be noted, however,” says Knight Frank’s head of logistics and industrial research Claire Williams: “that the pace of growth slowed significantly in the fourth quarter [of 2024], rising by just 0.9% – the increase solely driven by new development completions with 1.6 million ft2 of new stock added.

“Meanwhile,” she adds, “the supply of second hand stock declined by 10%.”

Floorspace

But what actually is available? According to Savills some two thirds – 66%, is Grade A space, the majority provided by newly completed speculative space on the market. Equal amounts of floorspace is Grade B and Grade C.

By unit count, according to Savills Big Box report, there are 49 units available in the 100,000–200,000 ft2 size range representing a 17% increase in the last twelve months, 13 in the 200,000–300,000 ft2 range representing a 63% increase, three in the 300,000–400,000 ft2 range representing a 40% fall, and one unit over 500,000 ft2 which is on par with the level seen twelve months ago.

The rise in supply can be attributed to 3.24 million ft2 of second-hand space being added to the market over the past twelve months, with over 1.06 million ft2 in the North West (M40-A1) Corridor and approximately 870,000 ft2 in the Eastern Corridor.

For the Eastern Corridor this will now include the 504,000 ft2 Ultrabox building in Purfleet which is being refurbished by Valor after long term tenant Carpetright collapsed last year. The building built in 2005 by GLP – known then as Gazeley – was at the time a best in class property. It was let to Carpetright on a 25 year lease in 2007. The company consolidated 13 former southeast depots into the one unit which boasted at the time of its original letting 12m eaves, 42 dock and four level access doors, 50kn/m2 floor loading and incorporated 30,500 ft2 of office accommodation arranged over ground, first and second floors on a 30-acre self contained site.

The property was sold by Abrdn to Valor and Blackstone for £143 million at the end of 2021 when Carpetright still had 10.76 years left on its lease on a reversionary rent of £9.60 per ft2. According to Lambert Smith Hampton Market Data prime rents for big box warehousing in Purfleet are around £13.75 per ft2 at present.

Completions

Additionally, around 900,000 ft2 of speculative development completions in units over 100,000 ft2 have contributed to the vacant supply. Nearly 400,000 ft2 has been added in North East London, 370,000 ft2 in the North West (M40-A1) Corridor, and 200,000 ft2 in the Eastern Corridor.

This includes two units on the Eastern Corridor that recently reached practical completion built by HBD and investment partner Barings, at Momentum Logistics Park in Rainham. The two units of 172,701 ft2 and 103,794 ft2 target BREEAM Excellent and EPC A+ rating. The larger unit has 18m eaves, eight dock and eight level access doors as well as a 50m yard depth. The smaller unit has 15m eaves, six dock and six level access doors and a 40m yard depth. They are being marketed by DTRE, CBRE and Glenny. There are two further units of 41,126 ft2 and 68,245 ft2 available.

Allan partially attributes the relatively high amounts of available speculative space already on the market seemingly all at once is a result of a hiatus in the market following the mini budget in September 2022 and subsequent rapid rise in financing and build costs.

“There has been a whole series of projects that were delayed [through 2023/24] due to costs issues, the market correction, increasing costs of borrowing and outward movement in yields – which held supply in check previously but inevitably had to come forward, with the result that it happened altogether when under normal circumstances it would have been more staggered.”

It is important to note that the release of the space to market whether speculative or secondhand came at a time when occupier take up softened considerably. Savills reported that take up across London and the Southeast fell 26% year on year to the end of 2024 with 14 transactions for units over 100,000 ft2 reflecting 2.67 million ft2 of space.

Net absorption

Looking at net absorption of industrial space across all grade and sizes, in Greater London alone, property analytic firm CoStar’s Mark Stansfield notes: “Demand, as measured by net absorption, has been consistently negative with more than 5 million ft2 of net demand losses since 2020. In effect more space has been added to the market than has been taken up.”

He adds: “Vacancy rates have trebled since 2019 where vacancy levels were 2% now vacancy is above 6%.”

Across the region looking at units from 50,000 ft2 plus Knight Frank has calculated the overall vacancy rate at 7% which is elevated compared to a year previously when it was 5.4% and more than double what it was at the end of 2022 when vacancy stood at 3.1%.

“At this moment as an occupier,” says Newmark’s Head of London & SE Logistics and Industrial Agency Josh Pater, “there is more choice, in more core markets, that at any point over the last three years.”

This is echoed by Lambert Smith Hampton’s new Co-Head of London & SE Industrial and Logistics Akhtar Alibhai: “[In areas where there is a lot of supply] there is opportunity for [occupiers] at the moment to get a great deal. Landlords are more generous on incentives such as assistance with fit out or rent free. Landlords getting more creative and helping with capex or phased rent free to facilitate deals.”

He says that for every year on a lease there is a month’s rent free – and some occupiers are able to secure even better terms.

What landlords and investors are not doing is budging on rents. Allan notes: “Almost universally landlords and investors are holding the line over rents.”

Savills Associate Director Southeast Industrial Natasha Ryan agrees: “Most asset managers want to keep headline rents as high as possible, but incentives are pushing out a bit to reflect those higher rents.”

And the main reason is that everyone thinks the market has reached peak supply and that an uptick in demand coupled with the fact that there is very little, if any new stock, due to come to market, supply is expected to drop considerably. Thus, no need to soften on rent levels.

Savills tracking

In terms of new supply coming to market through 2025 Savills is tracking just 11 projects totalling 2.4 million ft2. Of these six are within the 100-200,000 ft2 size range, two within the 200-300,000 ft2 range, one within the 300-400,000 ft2 range and two within the 400-500,000 ft2 range.

These include a 221,258 ft2 unit that is due to reach practical completion shortly at Wrenbridge’s 600,000 ft2 plus Junction scheme in Luton just off Junction 10 of the M1 motorway. Unit 1 comprises 197,717 ft2 of warehouse space with some 23,172 ft2 of offices and plant deck space. The warehouse has 18m eaves, 19 dock and four level access doors and parking for 30 HGVs. The property has been built to target BREEAM Excellent and EPC A rating. Joint letting agents are Adroit Real Estate, Avison Young and CBRE.

Williams says: “Though we may see vacancy rising further initially as new space reaches practical completion, supply and vacancy rates are likely to peak this year before starting to moderate.”

Savills has seen signs of improvement in occupier sentiment which will further squeeze supply, with its requirements index for units over 100,000 sq ft rising by 108% quarter-on-quarter within the Inner M25, and 41.7% for the wider South East area.

Indeed, Colliers associate director Georgia Pirbhai notes: “We are certainly seeing a lot more positive activity by occupiers in the first quarter of 2025.”

Pandemic

In addition to that, it is now five years since the start of the take-up boom triggered by the pandemic in 2020 and those five year leases and five year breaks are now drawing close. SHW is tracking more than 5 million ft2 of lease events scheduled over the next 18 months. SHW partner and head of agency Tim Hardwicke says: “While take-up was down over 2024, with the economy stabilising occupiers are more confident to make decisions and because of this coupled with the quantum of lease events, we expect transactions to increase.”

If that alone were not enough to stay landlord and investors from dropping rent levels then the fact that supply and vacancy rates across the region are not equally distributed, does.

Avison Young’s Allan explains: “The Southeast does not have the same type of clustering in the way that somewhere like the West or East Midlands does. There is no established larger scale big sheds market where you get a proliferation of large scale users – rather there is a navigation from one market to another round the M25.”

JLL’s Sophie Kettlewell agrees adding the market is nuanced. “It is quite difficult to talk in generalisations [about the market] when it is so disparate.”

Be that as it may says Knight Frank’s head of industrial Charles Binks: “The bigger sheds tend to be found further afield where there is and has been more land availability historically, for example along the A12/A13 corridor and in Kent or else in areas such as Luton, Milton Keynes and Bedford.”

M4 corridor

Out along the M4 corridor along the Thames Valley high land prices kept industrial and logistics developers at bay with the industrial sites repurposed during the late 80s, 90s and noughties into out-of-town office, retail parks or housing. The same can be said of areas out along the A1 and M1 corridors and the leafy burbs of Barnet, Welwyn Garden City and Hatfield where competing land uses edged out pure play industrial and logistics development.

There are pockets of intense industrial and logistics activity such as Heathrow, Greenford and Park Royal in West London and Wembley and Enfield in North London.

Suffice to say some areas have pockets of oversupply and others are woefully limited.

Kettlewell says: “When you look at the market east of London around Purfleet, Dartford, you could say it is a classic example of oversupply, the same could be said to an extent around Milton Keynes but on the flip side west of London Heathrow there is no supply.”

For occupiers availability of supply and indeed scale of that supply will depend on the gravity of search. Allan explains: “If you are looking to serve all of the Southeast you may consider larger units in Luton and Milton Keynes and if you require scale may even venture to Swindon, and London Gateway.

“Port of entry may also influence where an occupier searches, meaning schemes in area such as Kent can be popular.”

CoStar’s senior director of market analytics Patrick Scanlon says “Developers have signalled their confidence in the Kent market, with Panattoni increasing its investment in its net zero carbon logistics park at Sittingbourne to £170 million after buying an additional 10-acre site at G Park Sittingbourne from rivals GLP.

“The developer is preparing to submit a planning application for an additional 128,050-ft2 unit at Plot 4 Barge Way alongside the 645,000 ft2 first phase.”

A 58,000 ft2 unit has been pre-let to DPD while two further units of 205,320 ft2 439,228 sq ft are due to reach practical completion shortly. Joint agents at Panattoni Sittingbourne are Savills, Avison Young and CBRE.

Colliers Peter Styles says: “As well as national companies being served by these bigger developments so too are the are local companies which have been poorly served in the past.”

Gateway

He points to Scannell Properties and Royal London Asset Management Property’s 33-acre TN2 Gateway scheme in Tunbridge Wells. The development will comprise 500,000 ft2 of warehouses and ancillary offices in nine units, ranging from 23,000 ft2 to 175,000 ft2 built to target BREEAM Outstanding and an EPC A+ rating. Joint letting agents are JLL and Glenny.

Those companies looking to use DP World’s port services at London Gateway either for import or indeed export have a number of opportunities right there at the 9.25 million ft2 logistics park notes Savills Ryan. “In terms of looking at scale there are quite a few plots for build-to-suit and further speculative units planned.”

For logistics occupiers looking for scale on the western M25 it is more challenging as they are up against the formidable purchasing power of the data centre operators.

Binks says: “Data centres are not forcing up rents so to speak but they are able to pay multiples of what an industrial developer would pay for sites that could be developed for warehousing – indeed double or even triple the price especially if those sites have power.”

Royal London Asset Management sold a 33.6 acre plot in Southall in May last year to a data centre operator for £315 million equating to some £9.375 million an acre.

Developers are looking to trade in on the boom, at the beginning of this year Tritax Big Box secured a 74-acre site near Heathrow purely for data centre development and Prologis has a couple of properties in West London where it is only seeking short term leases of two to three years as the site has already been earmarked for redevelopment as a data centre and SEGRO secured planning for a 300,000 ft2 data centre with 25m eaves at Thorney Business Park between Slough and Hayes in west London.

Cold store

A big issue for a lot of these sites is power and this puts them in direct competition with logistics occupiers especially those in the food sector requiring cold store operations, which need to have close access to service London says SEGRO’s Director, London Alex Keith: “The result is we are seeing a substantial increase in competition from both sectors for large, strategically located sites with access to power.

“In the West, areas like Slough and Park Royal continue to see particularly strong demand, especially where power is available, given their proximity to key transport corridors, sizeable employment pool and also Availability Zones.”

There is displacement from markets west of London further down the M4 corridor due to data centre development, indeed according to Haslams the pre-leasing of a 46,000 ft2 property at Sutton Business Park in Reading to Synergix in 2024 was a result of its facility in Iver, being purchased for data centre use.

The decision to move further out is not just due to data centre displacement activity Keith notes: “Occupiers – and indeed logistics developers – today in London are navigating a myriad of additional challenges, including dwindling land supply, increasing regulatory pressures, infrastructure investment falling behind demand and various evolving trends including supply chain efficiency, transport and fleet decarbonisation but also ongoing technology disruption.

“For example, since new regulations around intensification and car-free schemes have taken effect, yard sizes and parking availability on many industrial and logistics schemes inside of Greater London have diminished, forcing larger logistics focused occupiers to look to developments free of compromise, often towards the outer edge of London and beyond to meet their operational needs.”

Relocate

Chancerygate senior development director Matthew Connor notes that rents play a part too in the decision to relocate. “We have seen occupiers migrating their operations to wider regions of the Southeast to mitigate the high levels of rental growth seen in the most central locations while still being able to serve customers.”

Allan agrees: “There has definitely been a trend from some occupiers to move further out for rent savings, but it is not solely based on rents there is usually a confluence of factors that influence the decision to up-sticks and move and these include rates congestion and even cost of employment.”

Collier’s Pirbhai adds: “It is noticeable that occupier are becoming more rent sensitive as they face cost increases on every front with increases in minimum wage, national insurance energy prices – it is forcing them to take stock of their overall footprint and where they can drive efficiencies moving from a core location in the Southeast could save money in terms of pounds per ft2.”

A lot of occupiers making that decision are also looking to significantly upgrade their facilities. According to Savills research 95% of the space transacted in 2024 was Grade A and that is likely to remain the trajectory of preference.

But are occupiers going to be able to secure that type of space? Well, it depends on where you look and where you can look. There is space available of the right quality the more footloose you can be, if you are locked into a particular location it will depend on what is there – but the mood music is that while there is not much speculative space being brought forward right now, there are sites coming forward and not all of them will be earmarked for data centre usage.