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.
Mike Baugh, Director, Industrial agency in Leeds, 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.”
Take-up in Yorkshire and Humberside reached 360,000 sq ft, just 40% of the quarterly average. Take-up was boosted by the 265,000 sq ft letting of Hurricane, Doncaster to Next. The region boasts the second largest amount of prime space in the UK after London, South East and East, at 3.9m sq ft, however it is unevenly spread. The outlook for take-up is good with several requirements from manufacturers and distributors for space in excess of 600,000 sq ft.
Mike Baugh continued: “Although performance in the last quarter was disappointing there are a number of companies in the market progressing acquisitions and we are hopeful that Q2 will show an improvement in take-up. There are, in certain size ranges, pockets of the region where supply is starting dry up and occupiers are having to consider design and build. As take-up continues against a lack of any speculative construction, we see interest in the design and build market increasing.”
The 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.”
