Take-up of large industrial space remained resilient during Q1 2012, alongside an upward trend in both development starts and completions that could signal the first signs of improvement in the sector, according to Gerald Eve’s latest Prime Logistics research bulletin.
Overall take-up of large industrial space (50,000 sq ft and above) stood at 7.3 million sq ft during Q1 2012, representing a smaller-than-expected fall of 8% from the 8 million sq ft recorded during the last quarter of 2011. Take-up during the period was driven by a combination of transactions delayed from 2011 – and even 2010 – and the unforeseen lettings of several large, long-term vacant buildings.
Occupiers and landlords have continued to demonstrate adaptability and ingenuity in getting deals done to the satisfaction of both sides, with the investment potential of the building in question often a critical negotiation point.
Of note is the recent upward trend in development activity. Despite a paucity of finance restricting the development market, rolling four-quarter totals for development starts and completions have shown some improvement over the past few quarters, driven largely by the progress of several large purpose-built schemes. If previously-delayed schemes are given the go-ahead during 2012, this trend could continue.
Purpose-built schemes continue to drive the development market, with only one speculative scheme in excess of 50,000 sq ft being completed during Q1. Pre-lets will continue to be a key driver of take-up throughout the rest of the year, but the relative lack of prime space in prime areas is certainly strengthening the case for the selective return of speculative development.
Richard Ludlow, partner and head of logistics and industrial agency at Gerald Eve, comments: “Although total take-up dipped slightly in Q1, the fall was much smaller than expected and as such is indicative of a market where the prospects for occupier demand are broadly positive.
“The potential increased demand for space, which we anticipate will rise throughout 2012, will only exacerbate the current problems associated with demand outstripping supply for prime space in the best locations. We are already seeing increased levels of pre-let development and, as demand rises and finance markets potentially increase their risk appetite, this could lead to speculative activity towards the end of the year.
“Using current levels of demand, our research suggests that there is only around a year’s supply of new or refurbished prime space available, including properties that are off the beaten track. There are now some sub-markets with no new properties greater than 50,000 sq ft on the market. Over time, this will have a positive impact on headline rents, which have remained static for more than two years, and provide further incentives for speculative developers, especially in prime locations.”