Gerald Eve comment: Logistics and retail are main drivers in take-up of large industrial space in West Midlands1st May 2012

Take-up of large industrial space in the West Midlands remained strong during the first quarter of 2012, alongside a national upward trend in both development starts and completions that could signal the first signs of improvement in the sector, according to Gerald Eve.

Overall take up in Q1 totalled 1.34 million sq ft, a rise of 5.5% on the 1.27 million sq ft recorded during Q4 2011. Also, the average deal size increased to 103,314 sq ft in Q1 (from 97,600 sq ft in Q4 2011), indicating not only a strengthening of occupier demand, but also a willingness to commit to larger deals, itself partly driven by transactions delayed from 2011 and even 2010.

Occupiers from the logistics and retail sectors have been the main drivers of take-up in recent times and this trend continued during Q1, but the automotive sector was also important, albeit tending to make its impact through smaller deals rather than larger lettings. It is anticipated that the automotive sector, what with the knock-on effects down the supply chain of the opening of large manufacturing plants, will be increasingly important to future take-up.

Landlords and occupiers have continued to demonstrate adaptability and ingenuity in getting deals done to the satisfaction of both sides, with the investment potential of the building in question often a critical negotiation point.

Of note is the recent upward national trend in development activity. Despite a paucity of finance restricting the development market, rolling four-quarter totals for development starts and completions have shown some improvement over the past few quarters, driven largely by the progress of several large purpose-built schemes. If previously-delayed schemes are given the go-ahead during 2012, this trend could continue and the West Midlands could be a key contributing region.

Purpose-built schemes continue to drive the national development market, with only one speculative scheme in excess of 50,000 sq ft being completed during Q1. Pre-lets will continue to be a key driver of take-up throughout the rest of the year, but the relative lack of prime space in prime areas is certainly strengthening the case for the selective return of speculative development.

Richard Ludlow, partner and head of logistics and industrial agency at Gerald Eve, said: “The slight rise in take-up, while not game-changing, is clearly a positive sign of the resilience of the West Midlands’ occupier market and bodes well for the future prospects of the prime logistics sector.

“The potential increased demand for space, which we anticipate will rise throughout 2012, will only exacerbate the current problems associated with demand outstripping supply for prime space in the best locations. We are already seeing increased levels of pre-let development and, as demand rises and finance markets potentially increase their risk appetite, this could lead to speculative activity towards the end of the year.

“Using current levels of demand, our research suggests that, nationally, there is only around a year’s supply of new or refurbished prime space available, including properties that are off the beaten track. There are now some sub-markets with no new properties greater than 50,000 sq ft on the market. Over time, this will have a positive impact on headline rents, which have remained static for more than two years, and provide further incentives for speculative developers, especially in prime locations.”