The continued weight of occupier demand for best in class units has translated into another period in which over 13 million sq ft has transacted, marking the fifth quarter to do so in the six quarters since the onset of the pandemic.
Such has been the sustained strength of the market, activity in Q3 is marginally down (-4%) on Q2, in which a record breaking 14.1m sq ft was let, and sits just below the 13.8m sq ft recorded (-2%) in Q3 this time last year.
As national restrictions have eased throughout the year it is clearer to see how adoption rates for online spend are becoming entrenched. ONS data shows spend has stabilised at around 26%, which means that more warehouse space will still be required to satisfy demand.
The current issues with supply chains highlights existing concerns over offshore operations, with some occupiers looking to increase inventory holdings closer to home. 3PL operators have been the largest contributors to take-up in Q3, commanding 23.1% of the space taken by occupiers. Both high street retailers (18.6%) and pure play online occupiers (15.8%) continue to have a significant impact on take-up levels.
Some of the largest transactions include Amazon taking 746,108 sq ft at Magna Park, Lutterworth, Easy Bathrooms signing a 695,876 sq ft lease in Wakefield and Eddie Stobart taking 565,000 sq ft in Doncaster.
As we move into the latter stages of the year a shortage of supply of standing stock is evidently manifesting. Since the start of 2021 there has been a 40% drop in available space on the market, such has been the unrelenting strength of take-up in the sector.
As the amount of available new stock falls below 5m sq ft for the first time, it is increasingly evident that a reduction of Grade-A stock is having an effect on the second-hand market too. The gap between both has been shortening since the start of 2021, indicating that the supply pressures on best in class units is meaning some occupiers are willing to investigate second-hand opportunities.
The percentage of Grade-A stock remains under 50% of all currently available stock, while 13% of all units are classed as Grade-C units, the highest level since 2016.
Rental growth continues to register positive increases thanks to positive absorption rates. Twelve-month rental growth to the end of September averaged 4.3% according to MSCI. Year-on-year growth continues to generate attractive opportunity for investors.
An additional 7.5m sq ft of warehouse space has been delivered in 2021, with 3.5m sq ft under construction and set for delivery by the end of the year. Increasing costs and a labour and materials shortage means many projects have been pushed into 2022 and beyond.