The Midlands shed market put in a good performance during the third quarter of the year with take-up 15 per cent up on the same period in 2011.
According to the latest statistics from CBRE, from July to September take-up of large industrial units (over 100,000 sq ft) totalled 530,000 sq ft across the East and West Midlands – a 15 per cent increase on the Q3 2011 total.
In the year to date, however, take-up was almost half (41 per cent) behind last year’s year to date total, at 2.69m sq ft and 4.6m sq ft respectively.
Nationally, take-up at the end of the third quarter totalled 2.64m sq ft, virtually the same as in Q3 2011. Half of this space was taken-up by the retail sector, which continues to dominate the market due to demand for larger units. The third party logistics sector was the second most active sector, accounting for 20 per cent of take-up.
Take-up in the year to date was 13.26m sq ft, just four per cent behind the 2011 year to date total of 13.83m sq ft, which is the fourth best year on record since 1996.
Richard Meering, senior director in the industrial agency team at CBRE in Birmingham, said: “The Midlands industrial sector put in another good set of numbers for the third quarter, which is encouraging given that we are still in a challenging market.
“This year’s year to date take-up may appear low when compared to last year’s but the difference can be explained by the fact that take-up during the first quarter of 2011 was much stronger than in 2012, whereas, in contrast, the second and third quarters were very similar. And with around 1.17m sq ft of space currently under offer, the balance could be redressed by the end of the year.
“What’s interesting is that nationally 75 per cent of new industrial take-up was design and build, while in the Midlands no notable design and builds have taken place so far this year, albeit a number of deals are in the offing including a 1m sq ft deal at DIRFT in Daventry, which rumoured to be going to a major retailer, and Roxhill Developments, which is about to sign 300,000 sq ft at Brackmills Point, Northampton. Network Rail is also taking 300,000 sq ft at Prologis’ Ryton scheme in Coventry.
“Together, that would amount to around a further 1.6m sq ft of design and build take-up in the region, which is a healthy boost for the sector.”
Mr Meering said there continues to be a severe shortage of new industrial stock in the Midlands, with less than six months supply left based on the long-term annual average take-up of 6.44m sq ft.
According to CBRE’s statistics, in the Midlands there is now just 7.12m sq ft of industrial space available, down 12 per cent since the end of 2011. The availability of new space fell more sharply (down 30 per cent), with new stock accounting for around a third of the total available space.
“There is a distinct and severe lack of available stock, particularly large new kit, in the Midlands,” said Mr Meering.
“You can almost count the number of available buildings between 200,000 sq ft and 500,000 sq ft on one hand, and with strong interest being shown in a number of these units the shortage could be further compounded.
“Encouragingly, developers are starting to acquire strategic development land again, but the planning and delivery process can be slow. What we need is ‘oven ready’ sites that have the planning and infrastructure in place to be able to deliver new stock to the market before it potentially runs out in the next six months.”
On the transactional side, according to Ed Gamble, senior director and head of the capital markets team at CBRE in Birmingham, deal volumes in the industrial sector have held up well due to sustained confidence from investors in the occupational market in the Midlands, where there is now a distinct lack of Grade A big sheds above 100,000 sq ft.
“This dynamic has attracted interest from a range of investors but mainly from UK institutions and large US private equity firms, the latter of which are enticed by the attractive returns relative to those attainable in the US,” he said.
“However, these buyers remain focused on the prime end of the market, valuing above all the strength of location. As a result prime distribution yields have held firm throughout the year. In contrast, the pool of buyers for secondary assets has thinned and capital values continue to fall as a consequence.
“There is still strong demand for prime multi-let industrial estates but the opportunities remain few and far between across the Midlands. This scarcity has ensured that values in this sub-sector have held.
“As the occupational supply and demand imbalance continues to tip in favour of landlords we would expect investors to remain focused on the prime distribution/industrial sector throughout the year, with values holding firm in the short term and possibly even improving next year as a result.”