Availability of big sheds (100,000 sq ft plus) in the Midlands has reached a critical point, with just three months supply remaining, research from CBRE has revealed.
Less than three million sq ft of new and secondhand space remains across the region. Based on the Midlands’ annual average take-up of seven million sq ft, by the end of April there could be no space left.
In the final quarter of 2014, supply of new and secondhand industrial and logistics space was reduced by more than 50 per cent on the previous quarter, from 5,538,104 sq ft to 2,676,607 sq ft. This is lowest level of availability since 2008.
Take-up during the quarter was 2,861,497 sq ft, taking the annual total take-up for the Midlands to 11.3 million sq ft – the highest it has been since 2006. This represents 55 per cent of the national total take-up of 20.2 million sq ft.
As a percentage of new take-up in the Midlands during 2014, 76 per cent of commitments were made on a pre-let or design and build basis, further highlighting the lack of available stock.
Richard Meering, senior director in the industrial agency team at CBRE in Birmingham, said: “The severe lack of supply is indicative of the renewed occupier confidence within the industrial and logistics sector, with manufacturing, automotive, online retailing and third party logistics companies seeing continued growth.
“However, we have reached a critical point in the supply cycle, with available stock all but dried up across the Midlands region, and the units that are being built are being snapped up straight away, such is the level of demand from occupiers.
“It is imperative that more speculative developments are built as soon as possible to ensure we have the stock in supply to satisfy future demand. Basically, it’s crunch time for the industrial property sector.”
Mr Meering said there has been a noticeable increase in the number of developers committing to speculative schemes.
According to CBRE, there is currently 3.5 million sq ft of speculative Grade A and new industrial and logistics space committed to in the Midlands.
Among the schemes are Roxhill’s Rugby Gateway (237,000 sq ft), Barwood Developments’ Central M40 (235,000 sq ft), Canmoor’s Silver Bullet at Hams Hall Distribution Park (150,000 sq ft), and Prologis’ Grange Park in Northampton (340,000).
“These schemes will help ease some of the pressure on supply levels but more space is needed, particularly as a number of these developments already have strong interest in them.
“The problem is there aren’t enough oven ready sites capable of accommodating large units of 400,000 sq ft and above, and where there are sites the protracted planning process is slowing down the delivery of them.”
In terms of the investment market, Ed Gamble, senior director in the capital markets team at CBRE in Birmingham, said there is considerable appetite from investors in the industrial and distribution property sector.
In 2014, 21 per cent of all UK commercial investments outside London and the South East were in industrial property, compared to 13 per cent in 2013 and the long-term average of eight to ten per cent.
“The market is red hot at the moment,” said Mr Gamble.
“As well as investors looking to acquire existing units, we are seeing an increasing number of UK and foreign investment funds looking at speculative development opportunities in the region, given the favourable market conditions.
“Although pricing is now reaching close to the previous high in 2007, the difference now is that there is potential for huge rental growth due to the lack of available stock and increased occupier demand, which we expect to put further downward pressure on yields.”