Cushman & Wakefield RETHINKING: The Shape Of Real Estate 2040

Supply has followed these trends with the delivery of Grade A space sitting at a record high, having been bolstered by a strong developer response. This development activity reversed the previous erosion of industrial stock that had been occurring as a result of competing requirements – primarily residential schemes in urban areas – with pre-interest rate hike examples of industrial land values surpassing residential land values within Inner London. More recently the sector has seen further interest primarily due to the aggressive recalibration of supply chains in order to facilitate growth in e-commerce activity accelerated by the pandemic and a wider shift toward re-shoring within the manufacturing sector in recent years.

With 27% of total retail expenditure taking place online in 2023, the UK boasts one of the highest online penetration rates among other developed economies as a result of high digital literacy and near-universal internet usage. Going forward, the increase in e-commerce related demand will likely be slower than that seen amidst the structural shifts seen in recent years. This reflects an e-commerce market that is closer to theoretical maturity, and that has already made significant structural adjustment, relative to European counterparts and comparable consumer markets. Increased e-commerce retail activity will feed through into logistics and industrial demand primarily through warehouses for online only stores and delivery hubs – which have both seen a surge in real estate demand – but also through requirements for larger regional and national distribution centres better positioned to serve omni-channel supply chains.

The resulting impact on demand is expected to continue at pace through to 2030. While retail sales are expected to continue to grow, new demand for logistics and industrial property from e-commerce related activity will gradually recede from 2030, as supply chain capacity matures, seeing demand renege back towards leasing events and incremental expansions as a result of marginal gains in market shares.

Stoked by increasing costs of production abroad and border-crossing fees, the rise of re-shoring is driving growth in domestic production, primarily around key hubs such as the North West, North East and the Midlands. Continued geopolitical tension and weaker arbitrage will encourage domestic industry and the strengthening of key trade relationships. The resurgence in UK manufacturing is likely to focus on high value outputs, such as automotive, advanced engineering, and large machinery, leveraging the UK’s competitive STEM advantage. Resulting additional demand for logistics and industrial space is likely to be driven by associated handling, and working of semi-finished goods, as well as the re-shoring of supply chains. These are the key primary drivers incorporated into our logistics and industrial demand forecast, with manufacturing employment, warehousing employment, goods production, goods exports, e-commerce penetration and retail sales volumes all feeding into the overall picture.

RETHINKING: THE SHAPE OF REAL ESTATE IN THE UK

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CUSHMAN & WAKEFIELD