The big box logistics market has experienced a mini boom over the last couple of years, attracting significant interest from both occupiers and investors.

Grade A supply is now half the level it was two years ago.  This sharp reduction in supply has been attributable to a pick-up in a demand and a lack of speculative development since the recession.

As a result the logistics market is now suffering from a shortage of supply that needs replenishing.

Since the recession, the first real return of speculative development in big box units (100,000 sq ft and over) occurred in 2013, when IM Properties built a new unit in Tamworth.  Since then other developers have slowly started further speculative development and ten new units have been built over the last two years.  Of these six are now occupied where some were taken before practical completion.  This highlights the growing demand from occupiers who need high quality units in the right location which are immediately available.

Today there is less than one year of supply in the market compared with the average level of take-up over the last couple of years.  This intensifies the need for further speculative development.  Developers have recognised this and at the start of this year construction commenced on a number of new units.  One example has been Prologis’s development at Prologis Park Midpoint; in January the company started constructing a single unit of 127,500 sq ft and in March before PC it was let to Syncreon at a rent of £6.35 psf which set a new benchmark rent in the Midlands market.

Currently there are 14 big box logistics units speculatively under construction nationally (2.7 million sq ft) which will bring some much needed new supply to the market.  But to put this in context, the amount of floorspace under construction is still well below the peak of the market (in 2007 there were 40 units speculatively under construction totalling 9.3 million sq ft) so developers will need to continue to put speculative development high up on their agenda.

So what do I think this gradual pick-up in speculative development will mean for the UK logistics market?

• Firstly, if demand continues to be as strong as it has over the last couple of years then there will not be enough new buildings being built to replenish the diminishing supply and as a result demand will not be satisfied by existing buildings alone.
• Secondly, this will have a knock on effect on rents and I believe that some new speculative units will be able to attract higher rents.
• Thirdly, more speculative development needs to take place over the next few years and I believe this will happen as a number of developers are currently considering their options – but there is always a caveat with this; developers will need to build the right units in the right location to ensure companies to want to take them!

Find out more in our latest UK Industrial and Logistics research