Strong increases in rents in the London industrial and logistics markets represent both a cyclical effect resulting from a growing London economy and a strong structural effect, according to Strutt & Parker, that could see rents in Greater London reach in excess of £20.00 per sq ft within the next two to three years.

Strutt & Parker highlight that rents for logistics and industrial space in Greater London have strongly outperformed those of offices and retail, outside of central areas, since 2000, and since 2013 have grown at a much higher rate than the industry is used to. Key locations such as Heathrow have seen prime rents hit £17.50 as occupiers vie for an increasingly constrained supply of space.

Although this recovery in rents is what would typically be expected during a period of economic growth, Strutt & Parker believe there are structural factors in play; which are both supporting current growth and likely to drive an acceleration in rents over the next decade.

Retailers, grocers and third-party logistics providers are increasingly willing to swallow market-leading rents as the price for getting the right property in strategic locations, with ever-improving efficiency gains from automation and IT investment helping to justify such decisions. Looking forward, the use of ‘big data’ will become increasingly key, as major retailers and grocers look to leverage customer purchase data and social media data to optimise warehouse efficiency, gain market share and ultimately deliver profitability.

Tom Grounds, associate partner in the research team at Strutt & Parker, said: “We expect the demand for logistics space in London to continue unabated. The pressure to deliver a good customer experience and profits will necessitate significant further investment in automation, IT and ‘big data’ analytics. These investments will help to justify increased real estate costs in the future as the squeeze on supply in Greater London continues.”

Strutt & Parker highlight the loss of around 10% of London’s industrial land between 2001 and 2010, and the expected further reduction of 10% between 2011 and 2031.

Ben Wiley, head of industrial agency at Strutt & Parker added: “For many occupiers in Greater London the need to be in a strategic location has begun to trump the levels of rent they are willing to pay.  There are a number of anecdotal tales among industrial agents of rents of up to £30.00 per sq ft being achieved on logistics space in Zone 2 and unless more land is made available for industrial development competition will continue to push rents to new levels.”