Speculative development of industrial space above 50,000 sq ft expanded outside of the M1/M6/M25 corridors in Q1 for the first time since development recommenced in late 2013, according to DTZ.
Two units totalling 138,000 sq ft in Chandlers Ford, Hampshire, along with a plethora of buildings in the South East, Midlands and Yorkshire gave a much-needed injection of new grade A supply to the market. Grade A availability increased to 12.2m sq ft in Q1, confirming the end of a downward trend since 2009, where lack of development meant that this best quality available space fell by 77% over five years.
Occupiers continue to utilise the build-to-suit market, with this type of deal accounting for 4.5m sq ft, or 84% of grade A take-up in Q1 2015. Q1 build-to-suit take-up was already significantly higher than that of the entire second half of 2014. These kinds of deals are predominantly located in regions where there is low grade A availability and where speculative development has not yet begun in a meaningful way. Next plc took 703,000 sq ft of build-to-suit space in Doncaster in the largest deal of the quarter.
Ben Clarke, Head of UK Research at DTZ added: “This increase in developer activity has been very welcome at the supply-starved prime end of the industrial market. With occupiers actively seeking out the highest quality buildings, we expect industrial prime rents to rise by 2.2% on average per year over the next five years.”
Simon Lloyd, Head of Industrial Agency at DTZ, based in Birmingham said: “The shortage of grade A space has meant that occupiers have had to take a built-to-suit option with its longer lead-in time, or an older grade B building in order to satisfy their property requirement. The increased grade A supply generated by an accelerating speculative programme will mean that they are now more able to take a better building with its operational benefits.”
Take-up in the North East totalled 446,000 sq ft.
Chris Donabie, Head of North East Industrial Agency at DTZ commented: “There is an acute shortage of grade A space in the North East and still strong occupier demand, as evidenced by the robust start to 2015 in terms of take-up. At present there are live enquiries from the manufacturing, third party logistics, parcel delivery and automotive sectors totalling in excess of 700,000 sq ft. If you add in Vantec’s proposed new build distribution unit close to Nissan then the total figure exceeds of 1m sq ft.
“Despite sustained demand there is still no reported speculative development of buildings in excess of 50,000 sq ft.
He added: “We do expect build-to-suit activity this year, firstly the aforementioned Vantec building in excess of 350,000 sq ft, and active requirements from the manufacturing and third party logistics sectors. The latter requirements could exceed 200,000 sq ft in total. There is rental evidence from recent larger transactions exceeding £5.00 per sq ft, which is certainly giving developers more confidence when appraising developments. Following the recession rents have gradually recovered whilst build costs rose far more sharply so any future further rental growth is welcome.”
