Large South West industrial property take up 70% up on previous year

Russell Crofts, head of the Industrial team at Knight Frank, Bristol

After a record breaking first half of 2016, the industrial property market in the South West returned to more normal trading levels in the second six months, according to new research from commercial property consultant Knight Frank.

The second half of the year saw take-up for units above 50,000 sq ft total 840,000 sq ft, compared with 571,000 sq ft at the same time last year. This brought the total for the whole of 2016 to 3.2 million sq ft, up 70% on 2015.

Russell Crofts, partner at Knight Frank in Bristol, said: “Despite the continuing shortage of big sheds, few developers committed to speculative building in many of the key markets across the South West during the second half of the year.”

Small and mid-range markets held up well, with rental growth remaining strongest in Secondary stock – although there was some evidence of the rate of growth slowing.

Significant industrial lettings during the second half of 2016 included 169,000sq ft  to Downton at Bristol Gateway, Sharpness; 113,000 sq ft to Wheatons Ltd at Polestar, Marsh Barton, Exeter; and 110,000 sq ft to Howard Tenens at the former Triumph premises in Swindon.

Russell added: “Aside from some pent-up demand from discount retailers, demand from retail occupiers slowed somewhat during the second half of the year. Even so, the biggest story is still Amazon and their medium-term requirements across the region. They have been responsible for significant take-up in key towns and cities across the South West, and the region is now in line for a new large format retail distribution centre.”

There had been a reduction in overall supply in some cities to sub 5% of total stock – a level not seen before. This had fuelled rental growth, but more importantly had allowed landlords to maintain very high levels of tenant retention.

“St Modwen Developments have been the first movers in Gloucester and Bristol and have been successful in setting new levels on both leasehold and freehold markets,” said Russell Crofts.  “Their model of mid-range sized units continues to trade very well. They have recently secured planning consent for a new smaller unit; a multi-let traditional industrial estate in Avonmouth, which when completed later in 2017 will be the first of its kind in 10 years.

“St Francis and Marcol remain on track to deliver 360,000 sq ft of speculative B8 units during 2017 at Filton in six units.

Looking beyond Bristol, he said: “Many of the region’s cities have found themselves short of employment land as the market has recovered. Swindon and Exeter remain particularly challenged in the long term. Bridgwater is now a point of focus with the commencement of construction of the new Nuclear Power Station at Hinkley Point.”

Looking to the regional outlook, Russell Crofts said: “Where we have seen annual rental growth of 12-15% over the last two years, there is evidence that this is now slowing. This is due to a combination of affordability, and lower deal volumes – making it difficult to identify clear trends. Speculative development in any of the key markets will provide space for occupiers to move, with secondary growth set to follow.

“The market has tightened further since the first half of the year, with supply now approaching critical levels. Whilst those landlords investing in cap-ex for refurbishments are being well rewarded, there remains scope for speculatively built, traditional units in many locations – but it would appear that the development funding market is not yet strong enough to support this demand.”

Prime headline rents per sq ft for industrial premises over 50,000 sq ft in the South West during the second half of 21016 were £7.00 in Bristol, £6.25 in Swindon, £6.00 in Exeter, and £5.00 in Plymouth. Headline rents in Swindon and Exeter were forecast to increase in the first quarter of 2017.