DTZ, part of UGL Services, a division of UGL Limited (ASX: UGL), has revealed the findings of its Property Times UK Industrial Q1 2012 report which covers the market for properties over 50,000 sq ft. The report found that compared with Q4 2011, industrial take-up in the first quarter of the year fell by 1.9m sq ft to 5.8m sq ft, the lowest quarterly level since Q2 2009 and almost 20% below the quarterly average. A fall in the number of transactions, from 60 to 49, largely accounted for the reduction.
Despite the fall in take-up, the lack of any sizeable space coming to the market resulted in availability falling by 1.5% to 165m sq ft, the sixth successive quarterly fall. Grade A stock did, however, fall disproportionately by 12.5% to 22m sq ft as prime take-up remained strong.
Simon Lloyd, Head of Industrial and Logistics at DTZ, commented: “The amount of space transacted in the last quarter has reduced compared with the previous quarter, which saw slightly above average take-up. However, the decreasing stock of Grade A buildings will have impacted on the take-up figures. Manufacturing companies continue to account for a significant proportion of take-up, even if reduced on a quarter by quarter basis.”
Q1 take-up in the South West totalled 805,000 sq ft, nearly double the Q4 2011 figure and also the quarterly average. The largest deal of the quarter was the sale of 45 acres to Sainsbury’s at Exeter Gateway for a 520,000 sq purpose built facility. Availability of prime space, particularly in Exeter and the M5 corridor is in short supply. The outlook for the rest of the year is positive with a number of sizeable requirements in the market, including Home Bargains which is looking for 400-500,000 sq ft in the region.
Simon Lloyd continued: “With virtually no new buildings available in the South West, those landowners with readily available land will see activity focused on their sites. Whilst Crossflow 550 at Avonmouth remains available (a building of 550,000 sq ft), companies wanting a smaller building have a very limited list of options. Those occupiers requiring larger buildings often want their new facility designed for their bespoke requirements. These, such as Co-op, Morrisons and CHEP, are thus opting for a type of development that requires a more lengthy build process, and so planning for the future is critical.”
The UK rental outlook for the quarter was similar to Q4 2011 with levels remaining flat and agents reporting a hardening of incentives on smaller prime units. Rental growth forecasts have been revised down, largely due to downward revisions to the economic forecasts.
Following a strong Q4 2011, investment activity fell by over 60% to £620m in Q1. The largest deal of the quarter was the £115m sale and leaseback of Tesco’s 930,000 sq ft distribution centre at Imperial Way in Reading to Legal & General.
Martin Davis, Head of UK Research at DTZ, said: “Looking ahead, there is only 800,000 sq ft of speculative industrial development scheduled to complete in the next 12 months, which coupled with existing prime availability, means most regions only have one to two years of prime supply left at average take-up levels.”
