Second-half outlook brightens for industrial property – Capita Symonds
The market for industrial and distribution property in the UK is likely to remain difficult for the next one or two quarters, according to new research from Capita Symonds, but the second half of 2011 should see confidence strengthening and growth improving.
After a “flat and difficult” 2010, Capita Symonds’ Andrew Smith says that small, specialist manufacturers are showing signs of strong activity thanks to the weak pound and a rebound in the SME sector. “The SMEs are scattered across the country and are not always in the strongest established industrial areas. Therefore, some of the more rural economies and industrial markets are benefiting by this resurgence with good take-up levels and growth in rents/values,” he notes.
In East London demand for logistics space is being boosted by the Olympics to be held next year. Capita Symonds expects “Olympic preparation fever” to have kicked in by the end of the year, and says this may help to lift the general mood not only in London but also across the whole country in locations where the Games will be taking place (Andrew Smith cites Dorset and Essex as examples).
There is still plenty of hype in the industrial market regarding sustainable industries and their potential requirements and property purchases, Capita Symonds says. However, few such transactions actually took place lasts year, and most such businesses also underestimated the lack of funding that was available to convert their requirements. “Nevertheless, they will continue to feature in the market and buildings/sites will be acquired by the well-funded players,” the firm notes. Funding also remains in short supply for new developments, with speculative schemes again unlikely this year apart from a few small-scale projects in high-demand locations, such as parts of London, or market towns experiencing shortages – and these are likely to involve private equity, charity or private family funding, not bank finance.
Looking in more detail at the industrial market this year, the firm says there are high expectations for rent recovery in some areas. It forecasts that incentives will start to harden a little. Landlords that continue to go the extra mile to secure tenants are likely to continue to distort the market, despite a consensus expectation that refurbished space that is “ready to go” could see growth of up to 3%-5% in rent, possibly by the second half of 2011, it adds.
