Industrial activity has been central to the East Midlands property market during the last 12 months, with both Derby and Leicester recording their highest ever take-up levels during 2020 according to a report by one of the region’s top agencies Innes England.
The Market Insite report, which was presented virtually this year for the first time in its 14-year history, monitors trends in the regional property market focussing on Leicester, Derby and Nottingham.
The report showed that the industrial market has been the shining star for the region during the coronavirus pandemic, particularly Leicester and Derby.
Investment levels in the UK commercial property market are down approximately 27% while the East Midlands recorded only a 16% drop based on the previous 12-months – something which can be explained by the strength of the logistics and distribution sector in the region, which accounted for half of all investment activity.
In the East Midlands, the report also highlighted:
* Industrial take-up figures up significantly in both Leicester and Derby – 34% and 82% respectively
* Biggest industrial letting saw DHL take 900,000 sq ft of warehouse space at the SEGRO Logistics Park East Midlands Gateway
* Availability of Grade A office space remains low in Nottingham – with market remaining stable as a result
* Footfall in city centres dropped significantly in April 2020 but appeared to recover before the second national lockdown
Peter Doleman, director at Innes England, said: “The industrial sector was the standout performer in 2020 across the East Midlands. In both Derby and Leicester, the market was dominated by Grade A space industrial lettings, which account for 74% and 78% of transactions respectively – showing that there was a demand from the big logistic operators.
“It is becoming increasingly obvious that there is a need to differentiate between our more traditional marketplace and the strategic distribution sector, for the overall take-up figures are skewed by these large one-off transactions that could provide a rather false sense of security.
“Importantly and beneficially, the big logistic companies are an increasing phenomenon and a significant driver of employment and development activity in our region.
“Over the year we also saw an increasing number of enquires for smaller industrial units, probably stemming from a growing number of new starts, but also modest expansions from a number of existing firms. Enquiries still come from a plethora of sectors but there is no greater demand being shown by distribution companies than there is from manufacturers, which is encouraging.
“In Leicester, availability in the industrial sector looks very substantial but put into context, 2.5 million sq ft is represented in 14 buildings all over 50,000 sq ft. There is one million sq ft of industrial space available at Magna Park alone.
“Meanwhile, in Derby, while take-up is significantly increased on previous years it is still slightly behind compared to Nottingham and Leicester having been affected by the fortunes of Rolls Royce, which in many ways drive the city’s industrial sector and can be seen as barometer of its marketplace. Relative growth has been significant in Derby.”
Key industrial deals include: 900,000 sq ft let of warehouse space to DHL at the SEGRO Logistics Park at East Midlands Gateway, a 532,000 sq ft let to Amazon at Hinckley Park and the let of the 371,000 speculative building at Derby Commercial Park to Alloga UK.
The report shows that the office market across the region has remained relatively stable with activity taking place in all three cities.
Craig Straw, director at Innes England, added: “Across the board, we have seen relative stability in the office market across each of the three cities. Some of the region’s key deals have included E.ON committing to 30,000 sq ft at Rutland Centre in Leicester; Metropolitan Thames Valley Housing taking similar floorspace at Beeston Business Park in Nottingham and Staton Young expanding in Derby by acquiring a 44,000 sq ft former tax office on Friar Gate.
“Whilst the pandemic obviously affected the East Midland’s office market its impact was perhaps not as negative as might be assumed, given that a large proportion of the working population have spent little or no time in their offices since the first lockdown in mid-March last year. Take-up across the region stood at 645,000 sq ft approximately 80% of the previous year’s total whilst supply remained relatively constant at £1.7 million sq ft.
“It will be interesting to see what the office of the future will look like and how the market will develop. With the enforced mass participation in a worldwide working from home trial, many organisations and individuals have embraced the advantages this brings. Going forwards, I think employers are going to have to create an office environment that employees want to visit and spend time in. I also think there is going to be an increased need for break out and social areas to facilitate the collaborative working and building of team spirit, which will become more of a focus for the office.”
In terms of the retail sector, initial footfall counts recovered better in small market towns with open air shopping centres and covered shopping centres lagging behind. Taking an index of 100, the first lockdown in April saw both Nottingham and Derby at ten. By September and October Nottingham recovered well at 90 with Derby faring better than the previous year.
Matt Hannah, managing director at Innes England, said: “The retail sector has been under pressure for some time, and the coronavirus pandemic has only served to accelerate those issues. The last 12 months has seen some significant casualties for the high street – Debenhams and Arcadia to name two of the biggest – which will have an effect in the cities in the region.
“There is an opportunity for change of use in some cases – we have seen this already in Derby and Leicester where the former Debenhams units will become Build to Rent housing, and the Nottingham site will likely attract the same sector investment. And it isn’t all doom and gloom elsewhere in the market.
“New schemes anchored by Lidl, Aldi and the major supermarket convenience offerings are opening and progressing all across the region, with discounters like B&M and Home Bargains actively sought by investors given their strong trading performance.
“The roadside market is also performing strongly and we will continue to see groups like EG Group, which runs more than 340 petrol filling stations. Larger sites will continue to run coffee shops, drive thru and drive to units, and as a general rule roadside schemes are pre-let and pre-funded reducing the exposure and risk to developers and investors.”
The report also showed that investment levels in the region have decreased – but by considerably less than the national average. In 2019, both Derby and Nottingham saw significant deals – the £120 million sale of the former Sports Direct HQ in Shirebrook and the £180 million sale of the Derbion centre respectively – skew the previous year’s figures. In Leicester, however, the investment market has been boosted by the £63 million Tesco at Beaumont Leys and the £48 million sale and leaseback undertaken by Next, on its distribution units.
