Industrial and Logistics remains 2021 leading commercial sector
The industrial and logistics sector remained the leading commercial property performer in the Eastern region during 2021 and has made a very robust start to 2022. This probably comes as no surprise with the ongoing problems associated with Covid but there were encouraging signs with the office sector despite media coverage suggesting there would be no future for this property class.
That, in summary, is the experience of the past twelve months by leading chartered surveyors and commercial property experts, Eddisons. In reviewing the activities of its agency reach across the Eastern region from offices in Peterborough, Huntingdon, Cambridge and Bury St Edmunds, Eddisons (incorporating Barker Storey Matthews), points to the increasing shortage of space for the industrial and logistics sector to expand, which will become a problem in 2022 and 2023 forcing prices and rents in an already extremely competitive marketplace.
Steve Hawkins, Partner and Head of Commercial Agency for Eddisons comments: “Stock levels remain at an all-time low in the region as a whole and this in itself has resulted in a continual rise in both rents and prices. This is an issue that has arisen in most regions of the country with, unsurprisingly, the Midlands and South-east regions hardest hit. If you look at say the Peterborough market, stock levels are at a painfully low level with an estimated vacant floor space of less than 125,000 sq ft out of a built stock in the city of around 24 million sq ft, in other words we are 99.5% full !” There is only one building over 30,000 sq ft vacant so occupiers are going to have to plan well in advance if they are looking for more space – bringing forward a number of new developments”.
“The other issue is in relation to new build prices forging ahead as a reflection of both a squeeze in the labour supply to the construction sector and rapidly rising materials costs. Admittedly some materials prices have now stabilised but they are not coming down to any great extent”.
The supply of new build opportunities has slowed with the problems associated with materials pricing but also delays to the delivery of certain products such as cladding, the cladding problem exasperated further by the need to reclad residential buildings so pricing pressures are enhanced.
Hawkins adds “we don’t see any real let up in pricing in the short to medium term so this is not really that good for occupiers. On the other hand, investors in this sector have seen stellar returns on capital, with an improvement in rental return and further enhancement in yield compression. The market for industrial and logistics investment property is as strong as it ever has been and we also see little change in demand in the short to medium term with a wide variety of purchasers requirements unsatisfied and the weight of capital still at record levels”.
While the office market stagnated during 2020/2021 office occupiers have been reviewing their requirements and the sector is not all doom and gloom. Occupiers are becoming increasingly interested in getting back to the office. Plan B put a temporary halt to this process but most companies are now keen to get staff back to the office environment despite offering a bit more “flex” with regard to home working for some. Staff are weary of the isolation issues so it does appear that prime office areas are holding up. Supply remains tight, but despite this, occupiers are looking for more flexibility.
Across the whole Eastern region and to date, deals concluded with occupiers across 2021 were up on 2020 by around 15% which actually counteracts the fall of about the same percentage in 2020 as compared to 2019.
Last year we pointed to the steadiness of investment in bricks and mortar in retaining its long term investment appeal and this has proved to be the case during 2021.
We are the same view for 2022 and predict that in overall terms commercial property will continue to perform well. The retail and leisure sectors will continue to adjust but signs are promising if we can get past the first quarter of 2022 relatively unscathed. Again there will inevitably be casualties but we are probably still in one of the best, if not the best, region in which to be located.”