The current crisis has put the importance of supply chains into sharp focus. As the pandemic expedites the move online, occupiers are stepping up space requirements, led by retailers, grocery players, 3PLs, and data centre operators.
Short term COVID-19 deals made up circa 10% of Q2 take-up, as retailers and healthcare providers sought space to stockpile essentials. This is lower than initially expected, with most short term requirements absorbed into existing capacity.
Online sales penetration hit a record 33% in May. While this will ease as shops re-open, lockdown has created a lasting change as far as e-commerce is concerned, particularly for groceries which had low online uptake prior to COVID-19.
Online retail accounts for 39% of H1 take-up. Amazon have so far completed, or are close to completing, up to 11m sq ft of deals in 2020 - more space than they took in the last three years combined. In Q2, Amazon leased new build units in Nottingham (550,000 sq ft) and Bedford (405,000 sq ft), and a 2.3m sq ft four-storey site at 'The Powerhouse' scheme in Dartford.
Other Q2 deals include Marks & Spencer taking MK360, a 360,000 sq ft unit in Milton Keynes from Logicor, and Bleckmann Logistics leasing a 186,000 sq ft distribution centre at Magna Park Lutterworth for GymShark, the online fitness brand. BNP advised on both transactions.
The proportion of Grade A supply has dipped from 54% at the start of the year to just over half in Q2. This reflects occupiers' growing preference for new units, coupled with COVID-related delays to new completions, rather than a marked rise in secondhand units coming to market.
We will be closely monitoring levels of second hand supply over the coming months, given the economic climate and associated tenant risk.
While some occupiers will look to rationalise space, for example in the autos industry, the relentless rise of e-commerce will continue to provide tailwinds on the demand-side, making it difficult to envisage a scenario where supply and vacancy rates return to levels seen during the previous global economic downturn in 2009.
Developers have been quick to adjust their project pipelines, holding off new announcements due to current uncertainty, and this cautious approach should also help avoid oversupply.
Construction activity was relatively quick to remobilise post-lockdown, but new build delivery in 2020 will still fall below the 9.2m sq ft recorded in 2019.
2.4m sq ft of speculative space reached practical completion over H1 2020. A further 5.2m sq ft is set for delivery by the end of the year, although some of this is likely to slip in to 2021.