Gerald Eve Prime Logistics Q1 Update
Large Industrial Property Take-Up Dips 8%
Take-up of large industrial space dipped by 8% during the first quarter of 2013, but supply of new and refurbished units continued to constrain the market, falling to just 11.8 million sq ft, according to the latest Prime Logistics report from Gerald Eve.
Take up for Q1 stood at 8 million sq ft, a drop from the 8.8 million sq ft recorded in Q4 2012, although without a number of very large pre-lets, which exaggerated the previous quarter’s figure, take-up would in fact have risen over the first three months of 2013. The figure of 8 million sq ft of occupational take-up represents a respectable performance and is not far shy of the five-year quarterly average of 8.6 million sq ft.
Continuing appetite from occupiers for good-quality space meant that, by the end of the quarter, availability of new or refurbished units had fell a further 10% to stand at under 12 million sq ft. However, with take-up driven by expansionary activities by existing occupiers, overall availability rose slightly to 87.9 million sq ft due to the return back to the market of large second-hand buildings. It is not anticipated that the increased supply as a result will have a material affect on the supply / demand balance currently defining the sector.
Indeed, the constraint in new supply has started to impact rental levels, with prime rents across the country predicted to see growth up to 2015. Secondary rents, while somewhat suppressed by the relatively high level of availability, are expected to show improvement from 2014, but are not predicted to experience positive growth until 2015.
Investment-wise, the focus very much remains on well-let, prime portfolios, and an imbalance between supply and demand for such assets is anticipated to lead to inward yield movement at the top of the market in 2013 (assuming suitably prime opportunities become available).
Sally Bruer, partner and head of industrial research at Gerald Eve, said: “The Q1 Prime Logistics update has shown the continuing improvement in the large sheds market, with take-up now within touching distance of the five-year quarterly average and availability of new units falling to a new low. Some regions are of course performing better than others, with demand in the Southern West Midlands, Merseyside & Cheshire and the North East all doing particularly well in Q1, but the general picture is very positive indeed.
“Overall availability has remained relatively stable this quarter at 12.6% but this masks the further fall in the volume of well-located prime space continuing to constrain the market, and this is reflected in the upward pressure on rents for new units. The number of operators opting for pre-let and design-and-build solutions is a sign that the space in many cases simply isn’t where occupiers require it, and in the very best locations we can expect to see tentative steps into the speculative development market in the not-too-distant future.”