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 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.
Chris Donabie, Senior Surveyor at DTZ in Newcastle, 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.”
In the North East take-up reached 1m sq ft, its highest level since 2009 and over three times the average. The largest letting was a 420,000 sq ft pre-let at Turbine Business Park to Vantec Europe to service their Nissan logistics contract, one of a number of lettings driven by the automotive industry. The region now boasts the lowest amount of available grade A space at 580,000 sq ft.
Chris Donabie continued: “Supply chain to the automotive sector remained the driving force behind take-up in Q2 as a result of recent announcements by Nissan in Sunderland and Caterpillar in Peterlee. The North East market is not solely reliant on the automotive sector however, as witnessed by take-up from Spicers for a 107,000 sq ft dedicated tea production plant in North Tyneside, in addition to take-up from offshore engineering and clothing importers.
He added: “The region was recently also boosted by the long awaited go ahead of the £77m investment by Hitachi Rail Europe in a new 450,000 sq ft assembly plant at Amazon Park in Newton Aycliffe to deliver the Intercity Express Programme (IEP). In excess of 700 direct jobs are projected with further positive spin off to the supply chain. DTZ is already fielding enquires from Hitachi suppliers in anticipation of contracts.”
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.”