Chris Donabie, Head of DTZ’s Industrial agency team in Newcastle warns that behind the optimism of the economy’s recovery, a distinct lack of development in the region could stall productivity for North East SME’s:
“In a recent interview Mark Carney, Governor of the Bank of England stated that Britain is “more than halfway” along the road to recovery. According to his comments, the “easy bit” of the recovery has taken place and we are now coming to the tougher part, where the economy needs to see an increase in productivity, pick up in real wages and export competitiveness which will have an impact on future growth prospects.
As the only region in the UK with a positive balance of trade in exports, the North East’s credentials as a highly productive and competitive location are unquestioned. To maintain this position, our region’s producers will increasingly rely on being able to maximise the efficiency of their existing facilities or secure new sites for expansion to meet demand.
Due to the acute shortage of Grade A industrial accommodation as a direct result of take-up and lack of speculative development over recent years, we have seen Grade A availability fall to critical levels. In addition, a PMI survey released recently by Markit revealed that UK manufacturing growth is at a 14-month low and there is now real concern that the lack of alternative new sites will mean some occupiers are forced to remain in premises which are no longer fit for purpose, directly hitting productivity.
The impact is being acutely felt at the small to medium end of the development scale where nothing of note has started in any real volumes for companies seeking premises of sub 50,000 sq ft. That is not to ignore the 50,000 to 200,000 sq ft bracket where supply is equally scarce and any new development has been on the back of a forward occupier commitment.
The next 12 months will be critical for the region’s industrial market with the prospect of increased interest rates, coupled with the uncertainty of a general election meaning many occupiers need to be creative in their operational management and long-term planning.
With a lack of good quality opportunities, occupiers will be increasingly drawn to new build options although the majority have resisted this since the beginning of the downturn. This is a more expensive route to occupancy and generally requiring more by way of lease commitment than ready built buildings. What choice do they have, however, if needing to secure good quality premises to continue business growth and remain competitive? In the North East, a lack of good quality supply is region-wide but most acute in the historic hotspots of the A1, A19 and A1231 in Tyne & Wear, Cramlington and around the A19/A66 in Teesside.
Any increase in interest rates and the knock on effect in terms of potential currency changes on export levels means the Bank of England have key decisions to make in the coming months. Even the smallest interest change could create a significant economic impact not only on a national but also on a regional level. Local companies now more than ever need to plan for growth and relocation carefully to ensure that productivity levels can be increased and that a lack of available space will not impact on future prospects.
Barring an unlikely economic meltdown following the outcome of the Scottish referendum, now is the time for developers and investors to be brave and make best efforts to bring sites forward, ready to meet the pent up occupier demand. In some key locations there is even justification for speculative development although funding remains difficult. Perhaps more crucially, occupiers need to embrace the market reality that to get the building they need, in the location where they want to be, they may well need to commit to a new build solution.”
