Given that rents in the sector have increased by almost 40% over the past five years, this will prove challenging for many occupiers.
I&L assessments have already been increasing in both size and value. The proportion currently stands at 21.7% and will increase significantly with the new Rating List.
Of the three primary commercial sectors, the Revaluation is likely to have, consistently, the most significant impact on I&L properties. This will particularly fall on larger units if the Government implements proposed differential rate multipliers where RV is in excess of £500,000. These properties are a stated target for Treasury as it focuses on the impact of online shopping on the high street.
Rental growth across this sector has been material, with an overall shift of 26.7% for the three years to the end of Q1 2024. However, substantial regional variation masks some of the largest increases, with London (36%) and Eastern (32%) seeing the fastest growth, and Wales (13%) and Scotland (11%) the lowest. The two Midlands regions saw growth of around 30% demonstrating perhaps that the big box market (which is concentrated here) is less dynamic than the London-focused urban logistics sector. The map below evidences these points.
Value movement has been driven by demand and supply-side pressures coming together to create an environment where above-inflationary rental growth is consistent across the sector, more specifically:
Demand
- Explosive growth in e-commerce (for example Amazon expansion)
- Urban logistics demand (last mile)
- Low vacancy levels
- Shift towards resilience and move away from just-in-time operations
Development Challenges
- Supply shortage and land constraints driving land cost
- Inflation and construction costs
- Increasingly challenging planning environments driving complexity and cost
Market Dynamics
- Investment appetite driving landlord expectations
