Record breaking rental levels of £7 per sq ft for prime industrial properties in the Midlands are now in sight, according to experts at Knight Frank.
IM Properties recently achieved £6.75 per sq ft at Birch Coppice, in an 80,000 sq ft pre-let to bathroom products supplier HiB, but according Jon Ryan-Gill, who heads Knight Frank’s Midlands industrial agency team, one deal on a 40,000 sq ft unit has already been done off-market at £7 per sq ft, and he believes others are in the offing.
He said: “It’s not that long ago that landlords and developers would have been more than happy with rents starting with a six. Now they are aspiring to seven.”
A number of factors have combined to push up industrial rents, not least pressure on stock availability.
Knight Frank’s latest research report (‘Logistics and Industrial Occupier and Investment Market Commentary”) shows that prime stock levels in the region have now diminished to around nine months’ supply. Existing new build stock in excess of 50,000 sq ft is now just shy of two million sq ft across 12 buildings.
Take-up of units larger than 50,000 sq ft reached 6.04million sq ft in the first half of this year, 34 per cent up on the same period last year and 37 per cent up on the H1 five year average.
Strong demand has reduced rent-free periods to around one month and secondary areas are also seeing rental growth as a result.
Jon said: “More than half of take-up for the six months to June was chalked up to pre-lets and design and build, underlining the lack of suitable oven-ready space.
“Made to measure space is more expensive – an increase in build costs by around ten per cent over the last year has not helped.”
Stock supplies are likely to remain a concern given that employment land is now at a premium – with prime consented land achieving in excess of £600,000 an acre.
Knight Frank is urging local authorities around Birmingham and Coventry in particular to release greenbelt land to reduce the pressure.
Jon said: “The market has lost around 150 acres to HS2. We are now at a stage where the region couldn’t accommodate a requirement of 500,000 sq ft from the likes of Amazon or Jaguar Land Rover. We urgently need better land options if we are to create and retain jobs in the region.”