Rents jump as Scotland runs out of industrial space

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Prime industrial rents for 10-50,000 sq ft units in Scotland have jumped three times faster year on year than the UK average as the lack of building activity forces businesses to compete for available space, according to the latest figures from Colliers International.

The commercial property firm found that prices for prime industrial space rose on average 7.7% in the 12 months to July 2017, compared to a rise of 2.3% in the UK as a whole, to the current Scotland average of £7.59 per square foot (psf). Current UK average is £8.68 psf.

However, the biggest concern is the area around Glasgow, which accounts for much of Scotland’s industrial and logistics needs but is running short of space to accommodate the growth in manufacturing and the retail delivery and distribution segment.

Bo Glowacz, senior research analyst, Research and Forecasting at Colliers International, said: “Availability has been declining gradually year on year in Greater Glasgow to the present 7 million sq ft. The overall vacancy levels have also been falling from 10.2% in 2012 to 8.0%. In terms of quality of the available stock, the vast majority is of poor second-hand quality with only 3% being new and refurbished stock.

“While rental increases have been welcomed by landlords, the Scottish Government’s decision to end 100% rates relief for empty industrial properties last year is likely to restrict speculative going forward, and there are currently no larger buildings planned speculatively in Scotland.

“Indeed, there are virtually no new or nearly new available buildings of between 30,000 and 95,000 sq ft, and just 3 modern warehouses of over 95,000 sq ft currently available, all within Eurocentral.”

Colliers believes that demand for industrial units is being driven by two key factors: the growth of online shopping and therefore delivery and distribution centres; and the recovery in manufacturing which is now accelerating due to the weak pound. Glowacz said that firms that need large units are likely to build their own or have them ‘built to suit’.

“Occupiers have benefited from competitive pricing over the past decade, but rising build costs and higher environmental standards are also placing cost pressure on required rental levels, not to mention empty rates that will now have to be factored into developers’ appraisals. Moving forward, pricing will need to be at new levels for projects to be viable.”

Another Colliers study recently found that the UK has a just over one year’s worth of industrial space left of the market, following a 62% fall in availability since 2009. In Scotland, that figure is closer to 2.5 years after a decline of 44%.

But Iain Davidson, head of Colliers International’s Industrial and Logistics team in Scotland, said that the real lack of available properties at the larger end of the scale posed a problem for the economy. “Many businesses now see modern, good quality premises as a way to operate more efficiently. Having to commission their own new-builds has its advantages as they will get tailor-made facilities, but it is a slower process, which could be a drag on the economy, just as the much-touted manufacturing-led recovery is gaining pace. The Scottish Government should be seeking to encourage commercial building, not placing barriers in its way such as the abolition of rates relief.”