Record breaking year for North East industrial take-up

2014 was a record breaking year for industrial take-up, with 23 national and regional records broken according to the latest figures from DTZ. Total UK take-up reached 32.6m sq ft over 2014, the highest since 2010, driven largely by improving economic sentiment and retailers expanding their logistics networks in response to the growth in online shopping.

DTZ Research’s Industrial Property Times report for H2 2014 also revealed that a record 14.8m sq ft of grade A space was taken over the last 12 months. Take-up in the North East reached 2.3m sq ft in 2014, the strongest year on record with 1.4m sq ft of grade A deals completed, driven largely by manufacturing companies.

2014 also saw the re-emergence of speculative development in response to the lack of available grade A space, with 9.1m sq ft taken through build-to-suit deals, double the 2013 total. Developers are largely building storage and distribution facilities and targeting locations with good access to the road network.

Take-up was strong for manufacturing (8.8m sq ft), logistics (6.8m sq ft) and retail sectors (12.7m sq ft). Jaguar Land Rover was the most active individual firm in the market in 2014, taking three buildings totaling 673,000 sq ft across the West Midlands. The largest deal of the year was a build-to-suit of over a million sq ft at Thrapston in the East Midlands.

Industrial prime rents are beginning to increase nationally, given the rise in activity and low level of grade A availability, which is driving competition between occupiers. Investor demand was strong in 2014, resulting in a record £6.1bn transacted in total. The largest investment deal of the year was Legal and General’s acquisition of the Ocean Portfolio, a prime, multi-let, industrial and logistics portfolio of 12 assets across the UK including Fradley Park in Lichfield, for £226.5m.

Michael Green, Research Analyst at DTZ commented: “Looking ahead to 2015, the need for speculative development will continue with more schemes across the UK set to be announced. We also anticipate high levels of take-up in 2014 to be maintained over the next five years as industrial output increases and occupiers look to increase their UK footprint, although continued difficulties in the Eurozone may have a dampening effect.

In the North East the last available grade A buildings in the region, a 264,000 sq ft building in Chester-le-Street and a 138,000 sq ft building at Doxford Business Park, Sunderland, were taken up in Q4, leaving no grade A space. Developers are unlikely to start speculative schemes larger than 50,000 sq ft so any significant grade A take-up is expected to be through build-to-suit deals.

Chris Donabie, Associate Director, Industrial agency at DTZ in Newcastle comments: “Industrial take-up over 50,000 sq ft was strong over 2014, totalling 2.3m sq ft, with healthy activity seen across the manufacturing, warehouse and logistics sectors. Commencement of construction of the Hitachi Rail facility in Newton Aycliffe at over 400,000 sq ft was a significant transaction, as was the letting of Drum One (264,000 sq ft) in Chester-le-Street to Coveris Rigid UK. Both transactions highlight the region’s continued strength and confidence in the manufacturing sector.

“There is now no large Grade A stock available, and for occupiers looking at the key locations in the region there is also a chronic shortage of better quality secondary or refurbished stock. Refurbishment of secondary premises should be given more consideration as the supply squeeze continues. and This has proved successful for UK Land Estates, with the letting of S3 Tyne Tunnel Estate (104,000 sq ft) in early February 2015 after a comprehensive refurbishment programme. Despite the market dynamics, speculative development of larger sheds is not predicted this year, although occupiers are increasingly exploring design and build opportunities.

“Looking forward, occupier demand is encouraging in early 2015 and this along with the lack of stock is pointing toward rental growth and further hardening of incentives in key locations. This is not just the case for larger buildings, with similar supply shortage of good quality units of between 20,000 sq ft and 50,000 sq ft in the region’s ‘hot spots’. Potential rental growth is a welcome boost for landlords and one of the reasons why industrial property in the North East has been so popular with investors in recent times seeking strong returns based on solid fundamentals.”