• Total availability falls to 9.8%, high-quality availability just 3.2%
• 500,000 sq ft of speculative development expected to start in early 2014
• Further 8.5 million sq ft under offer suggests strong start to year
Take-up of large industrial space (50,000 sq ft plus) during 2013 was 11% higher than the previous year, with increasing occupier demand pointing towards a strong 2014, according to Gerald Eve’s latest Prime Logistics report.
Overall take-up stood at 37.3 million sq ft, compared to 32.6 million sq ft during 2012, and represented the highest annual volume since 2010. Take-up was strongest in core locations such as the West Midlands, Merseyside and Cheshire, but strong growth was also seen in East London, Humberside and the Scottish Central belt.
However, a shortage of immediately available space continues to push occupiers down the design-and-build route. In signs that a shortage of prime logistics space is a constraint on the market, total availability fell to 9.8% at the end of Q4 2013 (Q4 2012: 12.4%), with the availability of the best-quality (new or refurbished) space even more restricted at just 3.2%, its lowest level since availability was first recorded by the Prime Logistics report in 2006, standing at just 10.4 million sq ft at the end of Q4 2013.
Indeed, speculative development saw a return during the year, with both IM Properties and Prologis starting on site with schemes in established logistics locations and a further 500,000 sq ft is expected to commence in the South East in early 2014. However, it remains unlikely that there will be a mass return of speculative development over the next 12 months, with funders yet to be fully convinced of the viability of many schemes, especially those outside of core markets.
Sally Bruer, head of industrial research at Gerald Eve, said: “The rise in take-up during 2013 represents an excellent year for the logistics property market, underlining the improvements in occupier demand in line with the increasingly strong recovery in the wider economy.
“Much of this growth has been underpinned by internet retail, although continued demand from sectors including automotive and more traditional bricks-and-mortar retailers have contributed to the market’s strongest performance since 2010.
“However, acute shortages of available space, especially among the highest-quality units, remain a major constraint on the market and will undoubtedly lead to prime rent rises during 2014. The return of a relatively small volume of speculative development will alleviate this situation slightly, but not enough new space will be built to satisfy a strong and growing occupier demand.”
Richard Ludlow, head of industrial agency, adds: “Developers and investors are seeking opportunities, particularly in the Midlands, South East and North West, to position themselves for this continued resurgence in the occupier market including land purchases in strategic locations and acquisition of assets let on shorter income profiles, It is those prepared to take on some risk who potentially stand to make the most in the near future.”
2.4 million sq ft of new industrial space completed during Q4 2013, bringing the total for the entire year to 7.5 million sq ft and going some way towards providing the investment market with much-needed product. That said, a wall of money chasing relatively few prime assets saw the lowest yield since 2007 with Iken Trust’s Q4 purchase of a 112,000 sq ft warehouse in Aylesford, Kent let to Kent County Council at a yield of 4.68%.
First produced in 2006 (analysing the 2005 market), Gerald Eve’s Prime Logistics bulletin focuses solely on industrial warehouse properties of 50,000 sq ft or more in size.