According to Savills, 2014 saw a significant increase in logistics take up to 32.5 million sq ft.
Retailers remain the dominant force representing 66% of total market take up. From a peak of 94 million sq ft in 2009, availability is at its lowest level since records began at 22 million sq ft. This drastic fall in supply has not, however, resulted in developers rushing to develop units speculatively in the same volumes as previous cycles.
Requirements are increasingly for bigger units, supporting more complex automated activities to respond to increasing consumer demands. Warehouses are being replaced by sophisticated logistics centres with increasing automation. As a result, coupled with the lack of available stock, design and build development accounted for 81% of all new take up in 2014.
Demand and supply dynamics are favourable for real rental growth.
Local Data Company (LDC) estimates current vacancy across the retail market sits at 13.0% of floorspace.
An over supply of retail space coupled with highly specific retailer demand means that a return to rental growth across the entire retail sector is unlikely in the near term. Lower oil prices and real wage inflation is giving consumer spending a boost. However, retail shops need to fulfil a specific purpose to attract the shopper through experience, convenience or value for money. Solid demand from convenience and value retailers continues to benefit certain assets resulting in a need for management to have a firm understanding of the market and the specifics of each asset owned or managed.
Supply of new retail space remains subdued with a historic average between 1999 and 2008 at 14.2 million sq ft per annum versus forecast 2014 to 2017 of 5.6 million sq ft per annum. The wider oversupply of retail accommodation is resulting in reluctant developers.
However, the growth in convenience shopping, particularly in the food market, will provide new opportunities for pre-let development. Convenience retail also supports click and collect with Verdict forecasting sales to grow by 86% in the next five years. Click and collect also benefits the wider shopping destination with 36% of click and collect sales resulting in a further store purchase.