Prime industrial and distribution rents rise as shortages continue – Lambert Smith Hampton
The supply of Grade A distribution properties and industrial units for sale and to let in the UK continued to tighten last year, falling 28% to 13.1m sq ft, says Lambert Smith Hampton, while levels of secondary space fell 4%.
In its National Industrial and Distribution Market 2012 report, LSH says Greater London and the South East region saw the largest improvements in take-up last year, while the traditional markets of the North and the Midlands continued to dominate activity levels. The overall availability rate dipped to 10.2% at the end of 2011 from 10.3% a year earlier – most markets saw a “fairly substantial” release of second-hand stock, LSH notes.
LSH says the most acute shortages of prime space are in the distribution warehouse sector, where supply has fallen to a UK average of six months, based on 2011 take-up levels. The lack of Grade A space has driven up rents for prime industrial space in 27% of the 59 locations surveyed by LSH, with a further 39% of locations seeing prime rents stabilise. Across all 59 locations, the average prime rent rose by 1.3% last year, after a 2.8% fall in 2010 – but in the secondary market, rents fell by an average of 1.8%.
Steve Williams, director of Industrial and Logistics at LSH, said: “Our findings show that prime rental values are on the increase in strategic locations where there is little or no grade A space available. This market imbalance will cause the market to tip in favour of landlords who own quality space, allowing them to harden their stance on rent and incentives.” He noted that pre-lets and build-to-suits accounted for 60% of market take-up in 2011, adding that “there were relatively few other options available to occupiers as little or no speculative development occurred in 2011”.
The research found an increase in activity by manufacturing occupiers in 2011, with this sector accounting for 20% of all take-up. Food retailers acquired 8.3m sq ft last year, which was 45% of take-up, while internet retailers made up 10% of activity.
LSH expects demand to rise this year, in all sectors and sizes, which it forecasts will lead to the return of big shed speculative development by the end of 2012.
