DTZ comment: Industrial space availability in West Midlands is shrinking28th May 2012

DTZ, part of UGL Services, a division of UGL Limited (ASX: UGL), 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.

Simon Lloyd, Head of Industrial and Logistics at DTZ, 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.”

The 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.

Take-up in the West Midlands in Q1 reached nearly 800,000 sq ft which was 25% below the quarterly average. Key deals included, Smyths Toys taking 415,000 sq ft at Lymedale Business Park in Newcastle Under Lyme and DHL taking 150,000 sq ft at Stirling Park, Solihull to service a Jaguar Land Rover (JLR) contract. Q2 take-up is forecast to be strong but not necessarily dependent on the automotive sector as had been anticipated.

Simon Lloyd said: “The continuing take-up of better quality buildings across the West Midlands is resulting in a very limited choice for those companies that now need good quality space. Whilst a few good quality buildings have returned to the market as occupiers move on, the shortage of supply may well impact on the prospects for growth in the short-term. Companies requiring new good quality facilities are now likely to need a building constructed for them, with the necessary longer lead in time, lease length and rent that result from this procurement route.”

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.”