Demand for warehouse & logistics space creates opportunities for industrial construction

A sharp rebound in demand for new warehouse & logistics space, as businesses prepare for economic recovery, has greatly strengthened the pipeline for new industrial construction work.

The opportunities for new work in the sector are highlighted in the new Glenigan Construction Industry Forecast 2023-25. After a downturn this year, it envisages a return to growth from next year with a 20% increase in the value of underlying industrial project-starts (under £100 million in value) followed by a further 6% rise in 2025.

The brighter prospects in the industrial construction sector stem partly from a 15% increase in the value of detailed planning approvals in the first four months of this year, compared to the period last year.

Areas with large industrial bases and which are close to the motorway network are seeing some spectacular increases in the value of planning approvals which should translate into new construction work next year and beyond.

Pro rata figures suggest the value of underlying industrial project approvals is set to rise in the East Midlands from under £300 million last year to over £1,400 million this year; in Yorkshire & Humber from around £800 million to over £1,200 million, and in the North West from around £500 million to well over £1,200 million.

Revival in e-commerce

Growth in industrial construction is being driven by the prospect of a revival in e-commerce as the economy strengthens along with various tax changes unveiled in the last spring Budget. The trend for ‘nearshoring’, where companies seek to shorten supply chains and store goods closer to home, is reinforcing demand for light industrial space.

Most of the upturn in industrial construction will be on new warehousing & logistics facilities. Although manufacturing project starts will be largely flat over the next two years, an increase in warehousing/logistics space is predicted to drive the value of underlying industrial project starts up from £6.79 billion this year to £8.16 billion in 2024 and to £8.64 billion by 2025.

The brighter prospects for building new logistics/warehousing space highlighted by Glenigan chimes with the message coming from property agents in the sector.

A recent report from Savills noted that enquiry levels for UK warehousing & logistics space have risen by 64% in the first half of 2023  - driven largely by a rise in demand for units over 500,000 sq ft – suggesting take-up of space by businesses will rise in the second half of this year. The agent also noted that vacancy rates of warehousing/industrial space, at 6.25%, are similar to the pre-Covid average.

A separate report from agents Cushman & Wakefield noted that whilst most available warehouse space was in areas where demand is robust, pockets of under-supply elsewhere continues to push up rents. The supply of affordable Grade B and Grade C space remains low. All of this will tend to encourage developers and bodes well for new industrial construction activity.

Opportunities on major projects

Glenigan data reflects the numerous opportunities for new construction work on major new industrial construction projects across the country.

At Coalville in Leicestershire, plans have been approved for a £99.9 million scheme for two industrial and logistics units at Bardon-3 Wood Farm, involving over 88,000 sq m of space. Work on the project is set to start towards the end of this year and run for 11 months (Project ID: 23035773).

Elsewhere in the East Midlands, a preferred contractor is due to be appointed, and work is set to start later this summer on a £38 million warehousing project at the Former Coalite Works in Bolsover near Chesterfield (pictured). It will involve three units and almost 38,000 sq m of industrial space (Project ID: 19377464).

Meanwhile, in the North West, outline plans have been submitted and work could start at the end of this year on the £114 million Manchester Logistics Hub for client Wain Estates on a site in Carrington, south west of the city. The scheme, which is at the pre-tender stage, involves around 95,000 sq m of industrial and logistics space and is set to run for 12 months (Project ID: 22148820).