Financing logistics in 2022

Unsurprisingly, investors and their lenders have become increasingly aware of the logistics sector’s apparent resilience to the disruption and major players in the online retail market are signalling demand for increased warehouse space to house their dispatch and returns processes. This has led to an attractive proposition of both an increase in land value and rental rates.

During 2020 warehouse vacancy rates sat at 5.6% in the UK, which was below the long-term average and investors ploughed £4.7bn into distribution warehouses - a 25% increase on the previous year. The wider logistics market in the UK also saw an increase of 13% more investment than the five-year average. Knight Frank suggests that by 2024 the increase in e-commerce will lead to demand for up to 92 million additional sq. ft of warehouse space (42 million sq. ft of which is due to be developed by the end of this financial year). The current limited supply and increasing demand has led to an inevitable increase in value.

For the savvy investor looking to make the most of this resilient market in 2022, a key consideration is location. Land prices vary widely, from £175,000 per acre for commercial development sites in Teesside to £3.7 million per acre in Heathrow. In particular, it is thought that ‘last mile’ delivery will become increasingly challenging for rural communities if the need for out of town fulfilment centres is not addressed. One saving grace to this might be that formerly disused agricultural buildings can be converted to a logistics use under permitted development rights and as such the rural market, with its low land prices and high potential for development can be seen as an attractive proposition for many big box logistics investors and lenders alike.

Smaller multi-let units are a relative newcomer to the logistics scene and they saw the biggest year on year increase in rental value of 7.3% which reflected a growing trend in the logistics market to focus on ‘last mile’ delivery and urban logistics. The benefit of urban fulfilment centres is that they offer an easy entry point to the increasingly popular ‘click and collect’ delivery strategy. The greater availability of large vacant retail units leads to the possibility of repurposing such space as fulfilment or distribution centres for ecommerce. Similarly, out of town retail parks offer access to infrastructure and the local labour market, with the added benefits of fulfilling the ecommerce market’s desire for space.

Looking to the longer term, all industries are facing pressure to deliver on environmental sustainability. The logistics sector is no different and is likely to require funding for technological driven efficiencies.

Overall it is thought that the pandemic has accelerated the change in the public’s shopping habits and the logistics sector is rapidly reacting to this change in demand which will undoubtedly lead to further investor and funder opportunities in the future.