The rapid expansion of the logistics industry is reflected in new research released today by Knight Frank which reveals twice as much large-scale warehousing will be built this year compared to 2020.

According to the leading property consultancy, 40million sqft of new warehouse space in developments larger than 50,000 sqft is scheduled for completion in 2021. This compares to the 20million sqft completed last year, as long-term strategic planning of retailers in response to ecommerce growth has led to a rise in development activity.

Much of this new space is already committed, with retailers and distribution companies opting to satisfy their requirements through build-to-suit solutions.

Charles Binks, Partner and Head of Industrial & Logistics at Knight Frank, said: “The robust forecast for online retail and increased competition for high-specification and well-located assets is driving development activity.

“Take-up over the past year has reduced the level of availability and Covid-19 has hampered construction, slowing the delivery of new stock to the market. Supply, particularly of high-quality space, has diminished. The level of occupier enquiries remains strong and many of the requirements logged last year have not been met. However, the availability of land or suitable sites remains a key constraint.”

Vacant warehousing remains tight across the UK, with 46million sqft of space currently available, which represents 10 months’ worth of supply at current take up levels. However, most of that space is in second-hand units that either do not have the right specification or in the right location. Due to robust levels of take up, the level of availability, particularly of high-quality space, has diminished over the course of 2020 and this is driving development.

In 2020 online sales accounted for 27.9% of total retail sales, and with non-essential shops closed ecommerce penetration rates reached a record 36.3% in January 2021. Retailers and distribution firms have responded by rapidly upscaling their operations by expanding delivery services, and this saw warehouse take up exceed 50million sqft last year compared to 34million sqft in 2019.

Even as shoppers return to the high street, the internet will play a larger role in the retail market than it did before the pandemic. Retailers need to embrace omni channel retail to remain competitive. Knight Frank analysis shows that every billion pounds of online sales requires approximately 1.36million sqft of warehouse space. Online sales rose £34bn YoY in 2020 and is expected to grow a further £41bn over the next four years and this growth is driving additional requirements for warehouse space.

Competition for space will continue to drive rental growth over the next five years, as well as longer average lease lengths. The strongest annual rental growth is expected in London (3.2%), followed by the South East (2.7%) and Eastern (2.7%) regions. Returns for UK industrial and logistics over the next five years are expected to average 7% per annum, outpacing those on offer in other real estate sectors.