Last year was a record-breaking year for the UK industrial and logistics sector — with transactions and take-up reaching new heights, investment hitting record levels, and speculative builds finally returning to pre-2007 numbers.
The good news comes in Lambert Smith Hampton’s (LSH) Industrial & Logistics Market 2015 report whose author claims that with more than 20 years’ commercial property experience, “I can’t recall a time when this market has been as dynamic as it is now”.
Following the robust expansion of the UK economy in 2014 even stronger growth is predicted this year, claims Steve Williams, the property management company’s national head of industrial and logistics. “This bodes well for occupier sentiment and activity over the coming year.”
Despite the forthcoming General Election, which the report claims will have no “lasting effect” on the recovery, his report suggests: “Occupiers who for years have been cautious to commit to a relocation or expansion will increasingly have the confidence to step into the market. This is reflected in on-going levels of active demand around the UK.”
With the economy strengthening and availability diminishing, LSH also predicts that prime and secondary rents in many markets will surpass their pre-recession highs over the coming 12 months.
Rental growth accelerated in 2014. All 11 regions recorded growth in secondary rents, while ten regions reported an increase in prime rental values. At 8.8 per cent, the North-East saw the strongest prime rental growth of any area, with three of the four key locations in the region registering double digit growth.
“The rental growth seen during the past 18 months will encourage landlords to extract increasingly stringent terms from current or prospective tenants, and this will fuel further growth for both prime and secondary rents in 2015,” says the report. “We expect a growing number of markets to see rents recover to their pre-recession highs.”
Speculative developments, fuelled by rental growth, the ongoing weight of money in the investment market and a gradual easing in the lending environment will produce the biggest headlines, LSH claims. It has already identified at least 4.4-million sq ft of speculative development being delivered during 2015 — double last year’s figure.
Close to £60bn worth of assets changed hands — the highest since 2006 — making 2014 a stand-out year for the UK commercial property investment market. “With a considerable weight of money continuing to target industrial assets, we expect investor demand to remain robust throughout 2015, with overseas buyers, REITs and UK institutions all active in the market,” predicts LSH.
On a note of caution, the report claims that the national reduction in the availability of Grade A space fell by 35 per cent last year to just under 18-million square feet and now represents only 7.5 per cent of total availability — a ten year low.
“Based on 2014 rates of take-up, total UK-wide Grade A availability now equates to just over two months’ supply,” LSH concludes. “All sectors of the market are experiencing notable shortages. The logistics sector has the highest level of Grade A supply, but even here Grade A space equates to just under three months’ supply.”
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