Acute shortage of grade A industrial space in South West – DTZ

Speculative development of industrial space above 50,000 sq ft expanded outside of the M1/M6/M25 corridors in Q1 for the first time since development recommenced in late 2013, according to DTZ.

Two units totalling 138,000 sq ft in Chandlers Ford, Hampshire, along with a plethora of buildings in the South East, Midlands and Yorkshire gave a much-needed injection of new grade A supply to the market. Grade A availability increased to 12.2m sq ft in Q1, confirming the end of a downward trend since 2009, where lack of development meant that this best quality available space fell by 77% over five years.

Occupiers continue to utilise the build-to-suit market, with this type of deal accounting for 4.5m sq ft, or 84% of grade A take-up in Q1 2015. Q1 build-to-suit take-up was already significantly higher than that of the entire second half of 2014. These kinds of deals are predominantly located in regions where there is low grade A availability and where speculative development has not yet begun in a meaningful way. Next plc took 703,000 sq ft of build-to-suit space in Doncaster in the largest deal of the quarter.

Ben Clarke, Head of UK Research at DTZ added: “This increase in developer activity has been very welcome at the supply-starved prime end of the industrial market. With occupiers actively seeking out the highest quality buildings, we expect industrial prime rents to rise by 2.2% on average per year over the next five years.”

Simon Lloyd, Head of Industrial Agency at DTZ, based in Birmingham said: “The shortage of grade A space has meant that occupiers have had to take a built-to-suit option with its longer lead-in time, or an older grade B building in order to satisfy their property requirement. The increased grade A supply generated by an accelerating speculative programme will mean that they are now more able to take a better building with its operational benefits.”

Philip Cranstone, Associate Director at DTZ Bristol, said: “The shortage of grade A space has meant that in recent years occupiers have either had to take an older grade B building in order to satisfy their property requirement, or alternatively a built-to-suit option with its longer lead-in time, as evidenced by some of the main parcels operators like TNT, Hermes, and DPD Geopost in Swindon, Bristol, Bridgwater and Exeter. Whilst there is a very small amount of speculative construction of around 30,000 and 40,000 sq ft buildings in Gloucester and Avonmouth, there is little evidence of other speculative development of any great scale yet in the South West. There is now a very real shortage of stock across all size ranges, and speculative development is unlikely to fill the void quickly enough.  An increase in grade A supply that would be  generated by an accelerated speculative programme would mean that occupiers would once again have the option to take a better building with its operational and sustainability benefits.”