Signs right for industrial spec development in the South West, but rising build costs pose a challenge, says JLL

The signs are right for speculative development in the South West’s industrial property sector, but developers remain cautious in the face of rising build costs, says JLL, as a new report shows that take-up in the region rose by 2% year-on-year in 2014.

Take-up of industrial floor space in the South West totalled 6.2 million sq ft last year, according to leading property consultancy JLL’s latest UK Industrial Property Trends report, boosted by the continued growth of the online retail market and associated regional distribution hubs.

The report showed that the South West region did particularly well in transactions involving units from 1,000 sq ft to 99,000 sq ft, where activity increased by 26 per cent to 5 million sq ft last year.

The take-up of units of 50,000 sq ft to 99,000 sq ft – the favoured size for regional distribution centres across the South West – increased by 57 per cent on 2013, the sharpest rise for all size bands between 1,000 sq ft and 99,999 sq ft.

At the end of 2014, the total available supply of industrial floorspace in the South West stood at 13.1 million sq ft, 23 per cent lower than 2013. Availability in units from 1,000 to 99,999 sq ft represented just over two years of supply compared with annual average take-up over the past five years (2010-2014).

Tim Western, director, UK industrial and logistics in JLL’s Exeter office, commented: “We expect demand to continue to be robust for the remainder of 2015.  With available supply continuing on a downward trend this will have a knock- on effect on rents. We are starting to see prime headline rents to increase in a number of key markets in the South West this year.

“2014 saw upward rental pressure and incentive packages harden with a continued reduction in stock levels of good quality second hand buildings. There is now evidence across the region of both manufacturing and distribution occupiers turning to bespoke design and build options to solve their accommodation needs. The signs are right for speculative development, but developers remain cautious and increasing build costs are challenging viability.”

One of the largest transactions in the industrial sector in the South West in the last 12 months was the sale of the former St Ives factory at Langage Industrial Estate, Plymouth, to Applied Automation. This typifies continued business confidence in the South West.

Prime headline rents increased in a number of locations in the South West in 2014 with rents in Bristol and Exeter both around 50 pence a square foot higher than 12 months earlier. In Bristol, rents were at £7.75 per square foot in December 2014, while in Exeter they were £7 per square foot.