Improving economic outlook driving strong industrial activity in the Midlands

Increased activity in the Midlands from retailers, third party logistics, parcel companies and automotive suppliers is driving increased demand for good quality industrial and distribution space, according to the latest industrial report from GVA.

The latest edition of the company’s Industrial Intelligence report has outlined significant turn-around in take-up across the UK as a whole during the last six months of 2013, with particular uplift in demand in the Midlands.

The continued growth of internet retailing has led to a sustained demand for medium-sized warehouses of between 30,000 sq ft and 80,000 sq ft in the region, particularly in locations on the edge of cities. This has been highlighted by the pre-let to John Lewis of a 59,000 sq ft customer fulfilment centre at IM Properties’ Solihull Business Park, and the acquisition of 57,000 sq ft by Aqualux at Solar Park in Solihull.

David Willmer, Senior Director, GVA, said: “As with other regions, the Midlands is experiencing a growing shortage of quality stock in the big shed market. There is now only 6.3 million sq ft of high bay buildings over 100,000 sq ft available, representing approximately a year’s worth of supply.

“Demand has been increased by the preference for the automotive industry to keep suppliers close at hand to fulfil ‘just in time’ requirements and the improvements in manufacturing generally. Interest in the Golden Triangle has been particularly strong, with developers competing for land.

“Looking ahead, occupier activity for the rest of 2014 is positive as there are a number of significant requirements in the market from companies including Bosch Siemens, Prowell and Wiggle. In terms of larger sheds, Jaguar Land Rover and Staples are both seeking units in excess of 400,000 sq ft.”

Falling Grade A availability has led to the return of design and build agreements. Returning developer and investor confidence in the sector is, also helping to alleviate some of the pressure on existing stock, with a number of speculative building developments coming on-line.

These include the development of a 225,000 sq ft unit by Prologis at Ryton, near Coventry, and Hamdon Gate who have developed a 110,000 sq ft unit at Brackmills Industrial Estate, Northampton.  IM Properties has also announced the speculative development of a 152,500 sq ft unit at Birch Coppice in Tamworth following the letting of a 168,000 sq ft unit to DAU Draexlmaier Automotive on the same site earlier this year and Goodman Logistics are constructing a 164,500sqft unit at Hinckley Commercial Park.

Activity in the Midlands is reflecting the national picture, with demand from parcel companies, high throughout 2013, and supermarkets and online retailers looking to grow their e-fulfilment networks.  There was also a surge in the automotive export market, which led to increased demand from distributors and parts manufacturers around Liverpool, Birmingham and in the North East.

Nationally, total take-up in 2013 for warehouses larger than 100,000 sq ft amounted to 20.2 million sq ft, 2% above the ten-year average. There was a significant amount of “onshoring” across 2013, particularly in the automotive sector, as many firms returned business to the UK to capitalise on favourable export conditions and increased consumer confidence in the domestic markets.

Meanwhile, the volume of construction orders for factories and warehouses in the final quarter of 2013 was at its highest level since 2008, almost double the level experienced during the same quarter the previous year.

David Willmer continued: “Mid-sized industrial units are ideal for both internet retail fulfilment centres and are highly sought after by automotive manufacturers and component suppliers, further squeezing availability of high quality units within this bracket, particularly in the Midlands.

“This improving demand is beginning to impact on rental growth, with the average for distribution property turning positive during the second half of 2013, and increasing by 0.5% across the year as a whole.

Capital values have also been rising since May last year, resulting in a 7.2% increase for 2013 and a total return of 15.1%. We expect returns of 18.2% in 2014, driven by further downward yield movement and higher rental growth.”