Industrial take-up in Wales reached record high in 2014

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 Wales reached just short of 1.1m sq ft in H2 2014, the second successive 6 month period with take-up greater than 1m sq ft. This contributed to give 2014 the highest annual take-up on record of 3.4m sq ft.

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.

The largest deal of H2 in Wales was the 220,000 sq ft former Signode premises in Swansea which was sold to Prospect Estates. This is reflective of a wider trend in Wales where occupiers are taking space, regardless of the quality, with a view to refurbishment. At the end of 2014, grade A availability stood at 478,000 sq ft across two sites. Appetite for speculative development is improving with several developers looking at small scale speculative schemes in strategic locations.

Chris Yates, Surveyor in DTZ’s Industrial agency team in Cardiff, comments: “The South Wales industrial market witnessed a much improved 2014 compared to the preceding five years, with take-up totalling nearly 3.4 million sq ft (more than doubling the take-up of industrial space across the region in 2013).  Whilst improved investor return has been a measure of yield compression as opposed to tangible rental growth, there is now a shortage of well located, quality stock.  Cardiff industrial has recently been identified by DTZ research as one of the top three underpriced property markets in the UK. Such factors may point to more mainstream investors re-entering the South Wales market over the next 12 months to capitalise on the improving regional sentiment.

“Whereas speculative development elsewhere in the UK has largely been driven by storage/distribution and logistics facilities along the M1 and M6 corridors, and around the M25, speculative development in South Wales has been at a far smaller scale.  2014 did however demonstrate an increased appetite amongst regional investor/developers, predominantly along the M4 corridor.

“St Modwen’s recently submitted planning application for phase one of their Celtic Business Park speculative development scheme at Glan Llyn, Newport reflects positively heading into 2015.  However, the continued disparity between development cost and property values suggests that new speculatively built schemes are likely to remain limited in number which is a concern if Wales is to attract inward investment.  With a general election on the horizon, as well as the prospect of increased interest rates being likely, 2015 will be a pivotal time for the region’s industrial market to ensure the economic recovery continues on its positive trajectory.”