The UK industrial boom: short-lived or just beginning?Andrew Smith
No one can deny the challenges for a pandemic-driven retail environment in 2020 were unparalleled. A stronger than forecast increase in ecommerce saw seven years growth in nine months, and such change in retail has exposed existing weaknesses, accelerated emerging trends and forced structural change.
A clear bi-product of this has been the emergence of the industrial sector as the proverbial darling of Covid-era real estate. Colliers’ latest report on UK industrial and logistics reveals some incredible statistics outlining the sector’s record-breaking £8 billion boom in 2020 – and now the question on investor lips, is how long can this really last?
Now, markets are, of course, cyclical, and the boom will eventually end – but if the multitude of acquisition, lettings and industrial fund raises we have already seen in 2021 is anything to go by, logistics investment will largely continue along the same trajectory this year.
A more measured view might suggest that the current boom will begin to slow down in the coming months as the urgent retail requirements resulting from Covid-19 (hopefully) tail off, and businesses start to look at more medium-long term solutions to make the supply chain more efficient.
A potential trend to watch out for in this respect is a slight shift away from investment in large distribution warehouses towards more repurposing of retail parks and other economically viable retail assets within or on the outskirts of urban areas, to incorporate a ‘last mile’ logistics element.
With the out-of-town sector experiencing the most rapid rate of change in its history, real-estate advisory firms are doing brisk business. At Innesco, we supported the business launch of new out-of-town specialist advisor, XPROP, towards the end of last year. The expertise of such businesses lies in their ability to step back, assess the best possible mix, and work collaboratively with owners, planners and occupiers to create long term value. Against the new market conditions, we can expect logistics providers to also play a collaborative role in this drive for sustainable value creation in the out-of-town sector.
Whatever happens, at the end of the day, we are living in extraordinary times. Commentators are reluctant to make solid projections about this current industrial boom because once Covid-19 is over, no one really knows where people will rush back to and what aspects of life and consumption are now changed forever. However, looking at the current market demand, consumer trends, and significant under supply of logistics assets, industrial investment still seems a pretty safe bet.
Andrew Smith. Account Manager. Innesco.