In a market where supply is already constrained and demand for new space in a post-Covid economy shows no signs of slowing, the rocketing cost of new materials is adding even greater complexity to the delivery of industrial and logistics space.

The result of a number of factors, from relaxation of lockdown restrictions vs reduced production following furlough schemes, to increased shipping rates, Brexit transition, the Suez Canal blockage and heightened demand from HS2, this increase is being felt right across the country. Larger developers with established supply chains may be protected to some extent, but smaller developers may well see some delays as well as increased costs impacting their programmes.

2020 saw UK warehouse take up exceed 50 million sq ft, with this level of demand continuing into Q1 and Q2 2021 and active requirements increasing by over 200%. Against this backdrop, supply is down to only 5.3% vacancy (30 million sq ft) with only around 13 million sq ft of speculative developments planned – the lowest level since 2015.

While an impact on land prices should be considered, given the shortage of supply in London, the South East and major conurbations, we cannot see levels falling in the short term.

To remain competitive, though, developers will need to look at where to push assumptions, particularly around headline rents, reducing void periods, rent free periods and further yield adjustments. There is a chance profits will be squeezed further as competition continues.

In prime urban locations – developers will try to pass these costs onto occupiers. We should also expect an increase in at higher density schemes in appropriate locations, particularly after the London Plan has advocated this approach.

With rent still being a relatively low percentage of overall cost to logistics operators and vacancy at an all-time low, it is our house view that rents will be pushed further above the MSCI Index prediction of a 2.4% pa.

We see this trend following suit in the regions but probably at a more muted rate. There may be more traction with occupiers to look at design and build opportunities too, working together to overcome construction shortages and incorporate more efficient design throughout their operations in the same way that many specialist occupiers are already doing as a matter of course.

Above all occupiers will need to recognise that starting the process of looking for a new facility earlier then they have been accustomed to is essential, particularly with the regional mid and big box markets where demand is strongest.