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DTZ Comment: Industrial take-up in East Midlands has fallen20th May 2012

Helen Longstaffe, DTZ

DTZ has revealed the findings of its Property Times UK Industrial Q1 2012 report, which covers the market for properties over 50,000 sq ft. The report found that compared with Q4 2011, industrial take-up in the first quarter of the year fell by 1.9m sq ft to 5.8m sq ft, the lowest quarterly level since Q2 2009 and almost 20% below the quarterly average. A fall in the number of transactions, from 60 to 49, largely accounted for the reduction.

Despite the fall in take-up, the lack of any sizeable space coming to the market resulted in availability falling by 1.5% to 165m sq ft, the sixth successive quarterly fall. Grade A stock did, however, fall disproportionately by 12.5% to 22m sq ft as prime take-up remained strong.

Helen Longstaffe, Director, Business Space at DTZ in Nottingham, said: “The amount of space transacted in the last quarter has reduced compared with the previous quarter, which saw slightly above average take-up. However, the decreasing stock of Grade A buildings will have impacted on the take-up figures. Manufacturing companies continue to account for a significant proportion of take-up, even if reduced on a quarter by quarter basis.”

In the East Midlands Q1 take-up fell to 625,000 sq ft, 40% below the quarterly average. The largest letting was 140,000 sq ft to Dalepack at Swan Valley. The outlook for Q2 is strong with a number of active logistics requirements in the market; however, due to a lack of available prime space near the M1 and M6 corridors, it is likely a large portion of this demand will be satisfied by build-to-suit deals.

Helen Longstaffe said: “We have seen good levels of activity in the region, particularly in the smaller size range of sub 20,000 sq ft, with a number of units currently under offer. This is very encouraging as it is illustrative of the general market sentiment.

“The supply of new grade A stock in the East Midlands continues to dwindle and the lettings/sales which are due to complete during Q2 2012 will further continue this trend. However, take-up for Q2 2012 is on track to exceed Q1 by some margin. Despite the take-up of good quality stock the lack of available funding makes it highly unlikely that there will be any significant speculative development of larger units in the region in 2012, if not 2013. Therefore, with dwindling grade A stock in prime locations, occupiers will either have to consider available buildings in more “off pitch” locations, or consider design and build. We are starting to see evidence of this trend at the moment and are in discussions with occupiers who are now prepared to commit to design and build, due to a lack of good quality existing buildings.” 

The UK rental outlook for the quarter was similar to Q4 2011 with levels remaining flat and agents reporting a hardening of incentives on smaller prime units. Rental growth forecasts have been revised down, largely due to downward revisions to the economic forecasts.

Following a strong Q4 2011, investment activity fell by over 60% to £620m in Q1. The largest deal of the quarter was the £115m sale and leaseback of Tesco’s 930,000 sq ft distribution centre at Imperial Way in Reading to Legal & General.

Martin Davis, Head of UK Research at DTZ, said: “Looking ahead, there is only 800,000 sq ft of speculative industrial development scheduled to complete in the next 12 months, which coupled with existing prime availability, means most regions only have one to two years of prime supply left at average take-up levels.”

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