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. In Yorkshire & Humberside take-up fell over 40% in 2014 to 2.1m sq ft, largely due to the low availability of good quality space, particularly in Leeds – the region’s main market.
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.“
With available stock levels for Grade A or modern premises continuing to fall across Yorkshire & Humberside a number of locations and occupier demand rising, particularly in the 30 – 80,000 sq ft size range, has meant speculative development is back after a seven year absence. Circa 600,000 sq ft is currently under construction most notably three schemes totalling 250,000 sq ft at the Cross Green Industrial Estate in Leeds. Availability levels continue to reduce across the region and occupier demand has risen dramatically.
There have been very few transactions in the design & build market over the past 7 years, with occupiers taking advantage of cut price deals during the recessionary period. With availability falling to record low levels in some locations, occupiers have been forced to consider build to suit / design & build opportunities. There has been a sizeable increase in requirements for build to suit / design & build opportunities with several named occupiers having instructed solicitors particularly in Leeds and Wakefield. Estates across the region are also experiencing record low void levels.
Paul Mack, Director and Head of the Yorkshire Industrial & Logistics Team at DTZ comments: “2014 and the start of 2015 has seen a dramatic rise in occupier demand for buildings below 100,000 sq ft with pent up demand across the Yorkshire region forcing occupiers to consider build to suit / design & build opportunities.
“As a result headline rental levels have risen over the last 12 months by as much as £0.50 per sq ft in some circumstances and incentives levels offered to tenants have decreased significantly with 6 months rent free being the average incentive per 5 year commitment as opposed to 12 months rent free pre 2014.
He added: “Should occupier demand in the large shed market return in 2015 as per previous years, this could cause a real shortage of available premises going forward and it will only take a couple of sizeable transactions to make a real dent in this market.
“With market demand and supply levels continuing to alter on a quarterly basis, it is therefore more crucial than ever to seek advice before deciding on a quoting rent or price or deciding on what size of property should be speculatively constructed.”
