The Midlands’ logistics sector has recorded its highest take-up of commercial space since 2010, figures from CBRE have revealed.
Overall, take-up during 2013 was 6.34 million sq ft, of which 3.81 million sq ft took place during the second half of the year. The strong second half performance helped push the total ahead of 2011 and 2012, which recorded 5.66 million sq ft and 5.75 million sq ft respectively.
According to CBRE’s latest Logistics MarketView report, the second half of 2013 also saw an increase in the number of design and build deals across the Midlands. Around 84 per cent of space taken in new buildings was linked to a design and build deal, compared to 46 per cent during the first half of the year.
Richard Meering, senior director and head of industrial agency at CBRE in Birmingham, said: “The logistics market continues to be blighted by a severe shortage of space and we expect this trend to continue in 2014. A position of net excess demand is likely to remain a feature of the market given the minimal amount of secondhand space coming back to the market and a lack of newer Grade A buildings. In addition, land supply remains extremely limited with the position from 2015 onwards particularly unclear. As a result, the market will be increasingly squeezed over the course of the next 18-24 months.”
The Midlands is one of only two regions in the UK that has seen the resumption of speculative development for 100,000 sq ft plus logistics units. At Birch Coppice, Tamworth, IM Properties is due to complete a 168,900 sq ft unit this month, while at Ryton, Prologis is underway with a 225,000 sq ft unit, which is due to complete in April. Both have already received strong interest from occupiers.
“It’s the start of the year and there are already a number of significant requirements, particularly retail-led, with one of the largest being 500,000 sq ft for Staples,” said Mr Meering.
“Others include the rapidly growing online cycling retailer Wiggle, children’s toy store The Entertainer, and clothing chain H&M. We also expect to see further demand emerge from the grocery retailers, given the rapid expansion of budget supermarkets such as Aldi and Lidl. Manufacturing, particularly linked to the automotive sector, and distribution will create further demand, heaping more pressure on supply levels.”
The current lack of supply in the industrial and logistics sector, coupled with increased demand, is putting upward pressure on rental levels, particularly in core Midlands markets. Evidence of this can be seen at Prologis, Ryton, where LG Electronics and Freemans both paid £5.95 per sq ft.
“A year ago, rents on existing modern units were fetching around £5.50 per sq ft. Since then we have seen a ten per cent increase.
“An indication of which direction rents are likely to move can be found in speculative schemes. At both Ryton and Brackmills 110 in Northampton quoting rents are £5.95 per sq ft and we would expect further pressure on rents at other future speculative units.”
The upward pressure on rents is also likely to impact upon occupiers who choose to remain in their existing premises.
Ian Gascoigne, director of logistics lease consultancy at CBRE, said: “Rent review increases are looking more likely now than at any time in the last six years. The lack of supply is restricting occupiers’ choice to move and also increasing the ability for landlords to seek increased rents on existing premises. The next 12-18 months should see significant rental growth across the region.”
For now though, Mr Meering said the focus remains very much on design and build and those developers with ‘oven-ready’ sites, such as Rugby Gateway, will benefit from the substantial lack of choice.
“This will be a key site for the Midlands. The development, a joint venture between Roxhill Developments and SEGRO, extends to 120 acres and can accommodate up to 1.8 million sq ft of logistics space. Infrastructure works are due to be completed by the summer, and the site is expected to attract significant occupier interest.”