Conditions in the UK occupier market for industrial property look set to remain challenging in 2012, but certain locations, will see some growth in headline rents next year.
The new research study from Jones Lang LaSalle, UK Industrial Property Trends Today, predicts that total industrial market take-up in 2011 will undershoot the level recorded in 2010 by around 13% in floorspace terms. Demand is expected to remain suppressed in 2012, given the weak economic outlook and uncertainties, although certain sectors of the market still have active requirements, whilst lease events will trigger take-up in other cases.
Total industrial floorspace availability declined in Q3 2011 to stand at 335.0 million sq ft at the end of September, 1.8% lower than at mid-2011. Availability in units below 100,000 sq ft stood at 248.1 million, down 1.3% on mid-2011.
Availability in large industrial and distribution properties fell by 3.5% to 86.9 million sq ft.
Relatively little available space was in new or refurbished properties. Only 13% of the total available floorspace was in new or refurbished properties. For units below 100,000 sq ft the corresponding proportion was 11%.
Compared with recent levels of take-up (annual average since 2009), total availability at the end of September 2011 equated to just over three years of demand whilst availability in units below 100,000 sq ft represented just less than three years of demand.
Commenting specifically on the South Coast Matthew Poplett, Director in Industrial and Logistics Agency, at Jones Lang LaSalle’s Southampton office said; “Despite the tough conditions, Southampton has continued to perform relatively well with take-up in 2011 projected to outperform 2010. As always there are hot and cold spots of activity, but within areas of strong take-up there is compelling justification for speculative development, although site availability is limited.
“The second-hand warehouse and industrial sector also remains a two tier market between refurbished and unrefurbished buildings. Occupiers and landlords who refurbish vacant premises after occupation let or sell these quicker than unrefurbished units at a higher price or rent with a smaller rent free period. Negotiations and legal work are quicker meaning the transaction is less likely to abort due to a complication.”
Speculative industrial development remains extremely limited. At September 2011 there was approximately 1 million sq ft of industrial floorspace under construction speculatively in 24 schemes across mainland UK. This compares with the pre-recession peak in mid-2007 of 15.5 million sq ft in 131 schemes.
With speculative development is set to remain limited in 2012, the report predicts that good quality available supply is likely to diminish as take-up exceeds replenishment. But poorer quality available stock could increase due to weak take-up and business failures.
Reflecting market demand and supply conditions, the report predicts that a number of locations will see some rental growth next year, mainly in and around London, but rents for poorer quality space will remain under downward pressure.
Investor demand in the multi-let market is expected to continue to focus on prime and good quality secondary estates in London and the South Coast. These regions are seen as relatively robust in terms of their economics and as offering some rental growth potential over the medium-term.
