DTZ, part of UGL Services, a division of UGL Limited (ASX: UGL), has revealed the findings of its Property Times UK Industrial Q1 2012 report which covers the market for properties over 50,000 sq ft. The report found that compared with Q4 2011, industrial take-up in the first quarter of the year fell by 1.9m sq ft to 5.8m sq ft, the lowest quarterly level since Q2 2009 and almost 20% below the quarterly average. A fall in the number of transactions, from 60 to 49, largely accounted for the reduction.
Despite the fall in take-up, the lack of any sizeable space coming to the market resulted in availability falling by 1.5% to 165m sq ft, the sixth successive quarterly fall. Grade A stock did, however, fall disproportionately by 12.5% to 22m sq ft as prime take-up remained strong.
Nick Atkinson, Director, Industrial agency in Newcastle, commented: “The amount of space transacted in the last quarter has reduced compared with the previous quarter, which saw slightly above average take-up. However, the decreasing stock of Grade A buildings will have impacted on the take-up figures. Manufacturing companies continue to account for a significant proportion of take-up, even if reduced on a quarter by quarter basis.”
After a strong Q4 2011, take-up in the North East fell back to the quarterly average of 250,000 sq ft. The largest deal involved Bestway Cash & Carry purchasing 110,000 sq ft on the Team Valley Industrial Estate in Gateshead. Prime availability in the region totals just 840,000 sq ft across eight buildings. The outlook for take-up this year is strong, particularly following news that Nissan has won the replacement Note contract.
Nick Atkinson continued: “The six month period from November 2011 to April 2012 was particularly busy for medium to large industrial units and a number of longstanding vacant buildings are now occupied or under offer. This trend is continuing into Q2 and putting more pressure on the dwindling stock of good quality buildings. Nissan and Caterpillar continue to drive demand in Washington and Peterlee respectively.”
The rental outlook for the quarter was similar to Q4 2011 with levels remaining flat and agents reporting a hardening of incentives on smaller prime units. Rental growth forecasts have been revised down, largely due to downward revisions to the economic forecasts.
Following a strong Q4 2011, investment activity fell by over 60% to £620m in Q1. The largest deal of the quarter was the £115m sale and leaseback of Tesco’s 930,000 sq ft distribution centre at Imperial Way in Reading to Legal & General.
Martin Davis, Head of UK Research at DTZ, said: “Looking ahead, there is only 800,000 sq ft of speculative industrial development scheduled to complete in the next 12 months, which coupled with existing prime availability, means most regions only have one to two years of prime supply left at average take-up levels.”
