Big box industrial occupier activity to pick up in H2 – Jones Lang LaSalle
Occupier demand for ‘big box’ distribution and industrial units for sale and to let (Grade A properties of more than 100,000 sq ft) is likely to remain restrained in the first half of this year, given the economic outlook, says Jones Lang LaSalle. The firm’s latest research into this sector shows that occupier demand for Grade A units of this size – new and good-quality secondhand units – fell sharply last year, following a strong rebound in 2010. But by the second half of this year, JLL expects activity to pick up, “due to the weight of active requirements and a pick-up in economic growth”.
The overall take-up of Grade A space was 10% weaker in the second half of 2011 than in the first, bringing the total for the year to 13.1m sq ft, which was 47% below the previous year’s figure of 24.8m sq ft but 20% above the total of 10.9m sq ft recorded for 2009. The five-year annual average for 2007-2011 is 16.9m sq ft.
Despite the lower activity level in 2011, availability also declined, given the scarcity of new developments. “Apart from a single unit of 130,000 sq ft in Scotland there has been no new speculative development completed in the market since the middle of 2009, and we expect the moratorium on speculative development to continue throughout 2012,” JLL says.
Total Grade A availability at the end of last year was 26.2m sq ft, down 14% from a year earlier. JLL says this represents a vacancy rate of 12% compared with its estimate of the total built stock of modern logistics floorspace, and notes that there is now less than 10m sq ft of new floorspace available – the lowest figure on its records, which go back to 2005. The firm notes that a quarter of all the Grade A floorspace taken up in 2011 was to fulfil internet requirements. Retailers accounted for 42% of the total, down from 51% the previous year, and logistics companies for 34% – up from 19% in 2010. Manufacturers made up 13% of the total and other types of occupier took the remaining 11%.
Key deals last year included 950,000 sq ft for Tesco in South Reading, 465,000 sq ft for Amazon in Hemel Hempstead, 295,855 sq ft for Welton Bibby in Westbury, 600,000 sq ft for Asda in Rochdale and 343,000 sq ft for Clipper Logistics in the Tees Valley.
Prime distribution rents were largely unchanged at the end of 2011 compared with mid-2011 in most markets, but incentives can mean wide variations, even between buildings of similar quality in the same location, JLL notes. Rents for build-to-suit facilities remain higher than those for speculatively built properties. Occupiers are clearly prepared to pay higher rents for buildings that will meet their desired specifications in the right locations, the firm adds.
