08.03.2010
Data from Gerald Eve’s latest Prime Logistics bulletin shows that 2009 was a predictably difficult year for developers and landlords but some occupiers seized the moment to take advantage of the ‘buyers’ market’ and have picked up some good buildings on competitive terms.
This analysis provides an interim snapshot of the UK industrial market and reveals the following key trends to emerge from the industrial market in 2009:
- Following a consecutive decline in take-up for the four quarters to Q3 2009, there are some encouraging signs in that the four-quarter total to Q4 2009 showed the first increase in take-up – albeit marginal – since early 2008.
- Total take-up for warehouses of 50,000 sq ft and above across the 24 Gerald Eve key distribution regions came in at 27.0 million sq ft for the year.
- New developed warehousing space was the lowest in a decade, with just over 6 million sq ft completed in 2009.
Chris Kershaw, head of industrial agency at Gerald Eve, comments: “Although take-up was 15% lower than the 31.8 million sq ft of 2008, it is still surprisingly high for such a challenging period. And whilst still somewhat off the long term average, market demand shows some signs of stabilising.”
As a reaction to current market conditions, just 1.5 million sq ft of the 6.1 million sq ft of new warehousing space delivered in 2009 was built speculatively. This brings spec development down to just 25% of total completions, in contrast to the 50%-plus accounted for during the development boom of 2006-2008.
The lack of new development is beginning to have a positive impact on availability: in Q4 2009, there was 24.7 million sq ft of new and refurbished space being marketed as available, down from 28.6 million sq ft in Q2 2009. Total availability has slightly increased since Q2 2009 to just over 106 million sq ft, largely as a result of second-hand space continuing to come to market, particularly in the Northern East Midlands, Greater Manchester and Southern West Midlands. Total availability for Gerald Eve’s 24 key distribution regions at the end of Q4 2009 was 17.2%, slightly up from 16.9% in Q2 2009 and significantly up from 15.5% at Q4 2008.
The oversupply of space in some areas has inevitably had a negative impact on headline rents, with the average decline in rents since Q2 2009 at around 3%. However, investors continue to view big sheds as relatively inexpensive products for the return on investment, particularly for prime warehouses let to tenants of good covenant strength (particularly supermarkets) on lease terms of more than 15 years. As a result, investment volumes for distribution warehouses and industrial property as an asset class have grown throughout 2009.
“As demand continues to outstrip supply of investment product and the burgeoning ‘weight of money’ in the market continues to grow, yields for prime distribution warehouses have continued to harden over the second half of 2009 and we expect this to continue into 2010”, comments Kershaw.
With speculative development unlikely to recommence in any meaningful way in 2010, the decline in availability of new and modern warehousing space may be good news to some developers with opportunities in locations of dwindling supply. The resulting lack of availability will force investors to be more creative or shift their criteria to fulfil their desire to add sheds to their portfolios. In terms of demand, there is a degree of uncertainty with regard to the levels of occupier activity in the short term although the first weeks of 2010 have already seen occupiers continuing to take space. However, the clock may have started to tick for occupiers to secure top-quality space on the best possible terms.
Overall, Gerald Eve expects that the market will remain challenging but takes a tentatively positive view of the big sheds market in the short term although there is still a great deal of uncertainty.
Prime Logistics is the definitive guide to the UK’s distribution property market. Dealing with logistics units of 50,000 sq ft and above, this research gives detailed analysis and statistics for 24 key distribution areas – from take-up, stock and development statistics to drivers of occupier demand, rental growth forecasts and regional outlooks. An overview of key statistics for the first half of 2009 follows:
| Gerald Eve Prime Logistics Statistics |
2007 |
2008 |
2009 |
| Total take-up |
37.1m sq ft |
31.8m sq ft |
27.0m sq ft |
| Total space delivered |
28.7m sq ft |
18.6m sq ft |
6.1m sq ft |
| Speculative space delivered |
17.4m sq ft |
10.8m sq ft |
1.5m sq ft |
| Total availability |
14.0% |
15.5% |
17.2% |
To download the full report as a pdf, please go to http://www.geraldeve.com/insight/prime-logistics.aspx
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