Take-up up of large industrial space in the West Midlands was 4% lower during 2012 than in 2011, but restricted supply should lead to rental growth over the course of 2013 and beyond, according to Gerald Eve’s latest Prime Logistics report.
Overall take-up for 2012 stood at 5.7 million sq ft, compared to 5.9 million sq ft during 2011, but still marked an improvement of 16% from the nadir of 2010. Despite the fall from 2011 levels, the West Midlands still outperformed the wider UK market, which saw a drop in total take-up of 9% between 2011 and 2012, highlighting the relative strength of the region’s industrial property sector. Automotive manufacturers, particularly Jaguar Land Rover, have been highly acquisitive during 2011-2012, accounting for 20% of floorspace taken up in the period.
Indeed, the strength of demand, along with a paucity of development, suggests the market will see upward pressure on rents over the next three years. The availability rate for the West Midlands stands at just 13%, down from almost 19% only two years ago, suggesting the return of speculative development is well overdue. With no speculative completions in the past two years, and only 1.13 million sq ft of design-and-build developments completed over the same period (out of a total stock of 106.53 million sq ft in the region), constrained supply is starting to have a considerable drag on the market.
Richard Ludlow, partner at Gerald Eve, comments: “The list of candidates of who will be the first to speculatively develop a meaningful-sized shed is quite short. The main ‘big shed’ developers are at the top of the list because they have the sites, but one should not rule out an opportunistic fund chasing higher returns.”
Despite the slight fall in take-up during 2012, the year saw some notable transactions, including the pre-sale of 300,000 sq ft at Prologis Park Ryton in Coventry to Network Rail, a 415,000 sq ft letting to Smyths Toys at Lymedale Business Park, Newcastle-under-Lyme and the pre-sale of a 250,000 sq ft unit at Birmingham Business Park, Solihull to Aero Engine Controls.
Within the region, there is a notable difference between the northern and southern West Midlands (see Fig. 1, below), with higher rents, take-up, development and investment to the south, along with lower yields and availability rates.
Fig. 1: Maps defining the northern (L) and southern West Midlands regions as analysed by Gerald Eve’s Prime Logistics report
Sally Bruer, partner and head of industrial research at Gerald Eve, comments: “The small drop in take-up on 2011 levels is mainly a result of economic uncertainty, but the low supply of appropriate logistics space is also a factor. Put simply, firms were often frustrated by a lack of the right space in the right locations, a fact reflected in the very low availability rate of 13% at the end of 2012.
“The relative strengths of the two halves of the region mean that it is the southern West Midlands where we expect to see the most rental growth – indeed, we are forecasting an average annual rental growth rate of 2.0% up to 2015 – and the lion’s share of any speculative development over the next three years, but the northern area has its strengths too. Overall, we think the prospects for industrial property in the West Midlands are very good, comfortably in the top five or six regions nationwide.”
First produced in 2006 to analyse the logistics property market performance, Gerald Eve’s Prime Logistics report focuses solely on industrial warehouse properties of 50,000 sq ft or more.