Yesterday we reported that a dynamic year lay ahead for the UK industrial and logistics market where transactions, take-up and investment are hitting pre-recession levels.
This is certainly the case in the North East where demand is intensifying but, according to DTZ Research, a lack of “big shed” availability threatens to put the brakes on the market.
In DTZ Research’s Industrial Property Times report, it is revealed that 2014 was an extremely prosperous year for the North East’s industrial market, particularly where large units of over 100,000 sq ft were concerned. Take up in the region’s industrial market as a whole reached 2.3 million sq ft, of which 1.4 million sq ft was grade A space.
Unfortunately, however, the report also indicates that the end of 2014 saw a huge depletion in the supply of “big shed” properties which could slow down the recovery of the local market.
As with the restricted office supply in Newcastle, stock in areas with good transportation links and strong local amenities is becoming depleted causing incoming businesses to look elsewhere as a means of acquiring premises suited to their needs.
Associate director of DTZ Newcastle’s industrial agency, Chris Donabie, believes that developers keen to cash in on the strong occupier demand but unwilling to engage in speculative development may consider other solutions to the supply shortage.
He says; “Refurbishment of secondary premises should be given more consideration as the supply squeeze continues and this has proved successful for UK Land Estates, with the letting of S3 Tyne Tunnel Estate (104,000 sq ft) in February 2015 after a comprehensive refurbishment programme.
“Occupier demand is encouraging in early 2015 and this along with the lack of stock is pointing towards rental growth and further hardening of incentives in key locations.”
Although occupier demand remains extremely strong, the financial crisis and ensuing recession continues to dampen developer enthusiasm for speculative developments. There are signs that this is changing, however, with plans in the pipeline for several industrial builds in the North East – UK Land Estates’ Team Valley scheme Kingsway North and Highbridge Properties’ Indigo Park development being just two examples.
Yet despite these early encouraging signs, Sanderson Weatherall partner Richard Scott believes that developers will not engage in large scale speculative activity within the industrial sector until rental growth gains a little more momentum.
He says; “Even though the North East industrial market is performing strongly, led by a strong manufacturing base, speculative development doesn’t stack up.
“The small schemes referred to have been heavily reliant on grant funding to make them work so we are still some way from any large scale speculative development.
“Any new development will have to be at rents upwards of £6 per sq ft which will be new territory for the market – what is needed are a couple of deals at a new level of rent to allow the market to move and hopefully make development more viable.”
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