DTZ, part of UGL Services, a division of UGL Limited (ASX: UGL), has released the findings of its Property Times UK Industrial Q2 2012 report which covers the market for properties over 50,000 sq ft. The report revealed that take-up of industrial space rebounded in Q2 to 8.1m sq ft compared with 5.8m sq ft in Q1, the highest level for two years and over 5% ahead of the same period in 2011.
A total of 64 deals were transacted in Q2, an increase of 33%. The average deal size however remained relatively low at 126,000 sq ft as demand was constrained by lack of availability of good quality stock at this end of the market. Total availability fell during the quarter to 143m sq ft, down 6% from Q1.
Grade A take-up fell for the fourth successive quarter as the lack of availability restricted demand and occupiers switched their attention to the more abundant good quality grade B stock. The relative scarcity of grade A space means that despite the fall in take-up, availability fell 10% to 18m sq ft.
The automotive sector was the driving force behind two of the larger lettings in Q2, with Vantec Europe taking 420,000 sq ft in the North East to service a Nissan logistics contract and Jaguar Land Rover (operated by DHL) taking 405,000 sq ft in the North West to facilitate an expansion of its Halewood plant.
Simon Lloyd, Head of Industrial & Logistics at DTZ, commented: “The substantial increase in take-up of space in the second quarter is particularly encouraging, and although the average size of transactions has not changed materially, this is largely due to the lack of availability of good quality larger buildings. Despite the recently reported economic statistics, manufacturing businesses accounted for a third of all deals, similar to the percentage recorded to the previous quarter, and off a 40% increase in floor area transacted.”
Take-up in the West Midlands in Q2 fell marginally to 680,000 sq ft, 30% below the average. The largest letting was NT International taking 130,000 sq ft premises in West Bromwich for Cash & Carry use. Grade A availability stands at 3.1m sq ft across 19 buildings. The outlook for take-up in Q3 is strong with a number of parties interested in the The Hub and other Birmingham buildings of 100,000 sq ft and above.
Simon Lloyd continued: “Although the take-up of good quality buildings in the West Midlands was relatively low in the last quarter, this is likely to be reversed in Q3 as a significant amount of Grade A floor space is currently under offer to a varying range of tenant sectors. The limited availability of top quality buildings across the region means that occupier choice is now very restricted.”
The report also revealed that the profile of occupiers has changed in the last 12 months, with take-up by logistics companies increasing to 16%, largely due to space being taken by Royal Mail and Parcelforce.
Investment activity rose considerably in the quarter to £1.4bn, dwarfing the £600m transacted in Q1. The £716m sale of the Sentrum portfolio to Digital Realty Trust, was the largest industrial transaction on record, and together with the £204.5m sale of the Segro portfolio to Harbert Management Corporation, accounted for 65% of the Q2 total.
Ben Burston, Head of UK Research said: “The current level of take-up is encouraging given the challenging economic environment. While occupiers are naturally wary of the problems in key UK export markets and the attendant downside risks, given the lack of supply we could see incentives hardening and upward pressure on rents in coming quarters.”