Industrial vacancy rates forecast to peak at 7.5% in Q4

National vacancy rates for industrial and logistics space are unlikely to exceed 7.5% in 2023, despite the decline in take-up figures to pre-Covid levels and an increase in speculative development. New research from Savills suggests that vacancy for units of 100,000 sq ft and above is most likely to rise and peak at around 7.5% in Q4 2023, before steadily falling to 6% by the end of 2025. The forecast is based on data covering pipeline, lease events and occupier failure, combined with varying scenarios of occupier take-up, to project vacancy rates into the future. Savills expects 18.1m sq ft of new supply across 79 units to complete in 2023, with 43% of this concentrated in the East Midlands and Yorkshire. In Q2 alone, just over 9m sq ft is due to hit the market, which will naturally see vacancy rates rise across the country. However, moving into 2024, the speculative pipeline will be heavily constrained. Pre-Covid, there were, on average, 1.6m sq ft of speculative announcements per quarter, which rose to 4m sq ft during the pandemic. So far in 2023, there have been 2.7m sq ft of announcements, a significant decrease on the same period last year, which was as high as 7.9m sq ft. At the same time, Savills has seen occupier requirement levels for new warehouse space steadily decrease. Yet, supply chain resilience, energy supply and ESG aspirations will mean that demand is still set to come from a variety of sectors in 2023. Looking at Savills requirement index, demand has rebounded by as much as 57% in the first quarter of 2023, suggesting take-up will start to rise in the second half of the year. Savills head of industrial and logistics research Kevin Mofid said: “Given current uncertainty in the market, it is pleasing to see that our model shows it is highly unlikely that vacancy conditions will return to levels seen during the global financial crisis, when vacancy reached almost 25%. “In fact, it is most likely that vacancy levels will not even breach the 10-year average of 9.8%.” Savills national head of industrial and logistics Richard Sullivan said: “What we are seeing is a return to pre-pandemic levels. Our projections suggest that we are still likely to see pockets of undersupply, which in turn will keep upward pressure on rents. “We have seen a bounce in occupier requirements in the first quarter of the year. This suggests that take-up should reach up to 35m sq ft this year, which is still in the upper echelons of what we would have seen prior to Covid-19.” To send feedback, e-mail julia.cahill@eg.co.uk or tweet @EGJuliaC or @EGPropertyNews Photo © imeenhae/Pexels