John Sambrooks, Associate Director in DTZ’s Industrial agency team in Birmingham warns that behind the optimism of the economy’s recovery, a distinct lack of development in the region could stall productivity for West Midlands SME’s:
“In a recent interview Mark Carney, Governor of the Bank of England revealed that Britain is “more than halfway” along the road to recovery. According to his comments, the ‘easy bit’ of the recovery has taken place and we are now coming to the tougher part, where the economy needs to see an increase in productivity, pick up in real wages and export competitiveness which will have an impact on future growth prospects.
Clearly there are many positive signs in the wider economy, which is evidenced in the West Midlands industrial market however, Mr Carney’s comments regarding productivity increases relies heavily on companies being able to maximise efficiency of their existing facilities or secure new sites for expansion to meet demand. Due to the acute shortage of Grade A industrial accommodation as a direct result of the lack of speculative development during the recession coupled with strong take-up of prime space, we have seen long-term average Grade A availability fall below 5% compared to historic 15% levels. In addition, a PMI survey released earlier this week by Markit revealed that UK manufacturing growth is at a 14-month low and there is now real concern that the lack of alternative new sites will mean some occupiers are forced to remain in premises which are no longer economically viable or fit for purpose, directly hitting productivity.
The impact is being felt acutely at the small to medium end of the development scale where nothing has started in any real volumes for companies seeking premises of sub 50,000 sq ft. The majority of development has been for 100, 000 sq ft plus sites in key logistics areas and which has been snapped up at early stages of development.
The next 12 months will be critical for the region’s industrial market with the prospect of increased interest rates, a general election and increased likelihood of speculative development, albeit at significantly lower levels than at the economy’s peak meaning many occupiers need to be creative in their operational management and long-term planning.
Increased interest rates and the knock on effect in terms of potential currency changes on export levels means the Governor and the Banking Committee have key decisions to make in the coming months with even the smallest changes potentially creating a significant impact not only on a national but also on a regional level. Local companies now more than ever need to plan for growth and relocation carefully to ensure that productivity levels can be increased and that a lack of available space will not impact on future prospects.
Now is the time for developers and investors to be brave with decisions to bring sites forward to meet the pent up demand in the occupier market to ensure the recovery continues its positive trajectory.”
