Logistics & Industrial Occupier Market Outlook 2024

Can Tenants Continue to Keep Paying Higher Rents?

fuel costs. However, real estate can be used as a lever to help control other costs . The ongoing emphasis on greater service levels is underpinning heightened demand for infill and central locations, despite the higher associated real estate costs. Most occupiers are willing to pay more in rent because the location creates more value, particularly on the transport cost side of the equation. Using the average supply chain cost benchmarks, for every 10% increase in rent, operating costs would only increase by around 1% (all else being equal). While this would imply businesses can continue to keep paying higher rents, it is not a one size fits all and occupiers are looking at ways to minimise real estate costs. Warehouse consolidation and a focus on efficiency through logistics cost savings are ways occupiers are achieving this.

Warehouse rents have jumped by almost 70% nationally since the beginning of 2020, while outgoings have increased by 50% over the same period. With the view that rents have further to run given the lack of uncommitted supply, this has prompted the question, “can tenants continue to keep paying higher rents?” To answer this question we have assessed this by: 1. Looking at the share of real estate as part of the overall supply chain cost, including the role that location can play in solving the outbound logistics side of the equation. 2. Assessing how consolidation of warehouse operations can positively impact operational efficiencies. Supply chain costs - where does the money go? Real estate is one of the smallest costs within the supply chain, accounting in most instances for less than 10% of total operational costs. Transport, particularly outbound logistics, is often the largest component of operational costs, which have been compounded in recent years given rising

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