Industrial take-up rebounded to 8.1m sq ft in Q2 2012

DTZ, part of UGL Services, a division of UGL Limited (ASX: UGL), has released the findings of its Property Times UK Industrial Q2 2012 report which covers the market for properties over 50,000 sq ft. The report revealed that take-up of industrial space rebounded in Q2 to 8.1m sq ft compared with 5.8m sq ft in Q1, the highest level for two years and over 5% ahead of the same period in 2011.

A total of 64 deals were transacted in Q2, an increase of 33%. The average deal size however remained relatively low at 126,000 sq ft as demand was constrained by lack of availability of good quality stock at this end of the market. Total availability fell during the quarter to 143m sq ft, down 6% from Q1.

Grade A take-up fell for the fourth successive quarter as the lack of availability restricted demand and occupiers switched their attention to the more abundant good quality grade B stock. The relative scarcity of grade A space means that despite the fall in take-up, availability fell 10% to 18m sq ft.

The report also revealed that the profile of occupiers has changed in the last 12 months, with take-up by logistics companies increasing to 16%, largely due to space being taken by Royal Mail and Parcelforce.

Rob Ladd, Director, Industrial agency at DTZ in Cardiff, commented: “The substantial increase in take-up of space in the second quarter is particularly encouraging, and although the average size of transactions has not changed materially, this is largely due to the lack of availability of good quality larger buildings. Despite the recently reported economic statistics, manufacturing businesses accounted for a third of all deals, similar to the percentage recorded to the previous quarter, and off a 40% increase in floor area transacted.”

In Wales there were no lettings above 50,000 sq ft in Q2. While interest in smaller units is robust, demand for larger units is restricted by a lack of suitable availability which currently stands at 750,000 sq ft for prime space. Recent news suggests that space could be returned to the market soon as Alberto Culver has announced it is to close its South Wales production plant resulting in 300,000 sq ft of production and warehouse space being returned to the market.

Rob Ladd continued: “Whilst the number of deals at the smaller end of the property market continues, the lack of larger grade A stock in Wales meant that no industrial transactions were reported over 50,000 sq ft in the Principality in the last quarter.

“Many large occupiers are fairly ‘foot loose’ and are willing to consider properties anywhere in the UK. However since the old Welsh Development Agency stopped building large units speculatively, Wales has suffered from a lack of good quality industrial properties which will enable the region to attract larger enquiries and is reflected in these latest figures.”

Investment activity rose considerably in the quarter to £1.4bn, dwarfing the £600m transacted in Q1. The £716m sale of the Sentrum portfolio to Digital Realty Trust, was the largest industrial transaction on record, and together with the £204.5m sale of the Segro portfolio to Harbert Management Corporation, accounted for 65% of the Q2 total.

Ben Burston, Head of UK Research said: “The current level of take-up is encouraging given the challenging economic environment. While occupiers are naturally wary of the problems in key UK export markets and the attendant downside risks, given the lack of supply we could see incentives hardening and upward pressure on rents in coming quarters.”