Big sheds bounce back, but the secondhand market still under pressure

Following a turbulent few years, there is evidence to suggest that the big shed occupier market is bouncing back, according to Gerald Eve’s latest Prime Logistics bulletin.  The research reveals that total take-up in Q4 2010 stood at 10 million sq ft, the highest quarterly volume recorded in its regions since Q4 2007.

Demand for big sheds has been fuelled largely by retail occupiers, who collectively accounted for 15.7 million sq ft of take-up in 2010 – the largest take-up in the sector for almost a decade.  The UK’s improving manufacturing sector has also made a positive contribution to the overall health of the big sheds market, with take-up in the region of 7.5 million sq ft for 2010.  Q4 in particular showed above average demand from manufacturers with commitments to some 2.3 million sq ft of space.

Although the performance of the new build big shed sector towards the end of 2010 provides some reasons to be cheerful, this has further exacerbated the woes of the secondhand market.  As occupiers have used prevailing market conditions to strike competitive deals on quality new space, this has contributed to a significant overhang of secondhand stock.

Steve Sharman, Associate at Gerald Eve, comments: “The amount of secondhand space currently being marketed across the UK stands at 90 million sq ft; having doubled since Q4 2007.  With the bulk of current occupier demand directed at new space, this leaves the secondhand market under pressure in terms of rental levels and incentives.”

Richard Ludlow, Head of UK Logistics at Gerald Eve, comments: “Good quality big sheds continue to reap the benefit of the recent upsurge in occupier demand, which in turn has reduced the supply of prime sheds on the market. As such, we anticipate that purpose-build requirements are likely to dominate activity for the foreseeable future, but we also expect select pockets of speculative development activity to capitalise on those occupiers with more urgent requirements, not able or willing to accommodate build-to-suit projects.”

Development activity remains very low, with just 5 million sq ft of new build stock delivered to the market during 2010.  Of this, just 160,000 sq ft was speculative – the lowest level of speculative development completed in the sector in over a decade.  It is anticipated that the build-to-suit market will go some way to fill the resultant shortage, but it will do little to erode the high levels of secondhand available space.

While this is in many ways the most positive sector update for over two years, the industrial market still faces a number of challenges.  While some large requirements will help bolster headline take-up figures in 2011, the underlying economic headwinds, including the strain on household finances and the effects of the Government’s Comprehensive Spending Review, place a degree of uncertainty on the future levels of demand for warehouse space.