Robust H1 take-up in Western Corridor industrial market – Jones Lang LaSalle
Take-up of industrial and warehouse property in the Western Corridor region was 50% above the ten-year average in the first half of this year, at 2.5m sq ft, says Jones Lang LaSalle. This was also a 3% improvement from the second half of 2010. This performance separates the Western Corridor market from the rest of the UK, where industrial property take-up was much lower in H1 2011.
JLL thinks the buoyancy of the Western Corridor reflects the “huge changes in the way retail markets are served, which have created demand close to London from third-party logistics operators and retailers, and the continuing strength of demand for goods and services in London”. It also notes that there have been plenty of lease breaks and expiries in 2011, creating opportunities for occupiers to take advantage of favourable terms currently on offer. “Pro-active property owners, anxious to reduce voids in their portfolios, have been offering uncharacteristically generous terms to occupiers with lease breaks or expiries, to coax them from their existing premises,” it notes.
The sharp jump in Grade A take-up (+156%) in West London boosted H1 2011 take-up in this area by 27% compared with H2 2010, at 1.7m sq ft, the firm says. This is a noteworthy shift from last year, when most take-up was Grade B space. “A two-tier market is evident with poorer quality space becoming increasingly difficult to let,” JLL notes. In the Thames Valley area take-up was 26% lower in the first half of this year compared with a very strong H2 2010, but still well above the ten-year average, it adds.
The prelet market returned around Heathrow as part of a rebound in activity in this area, while Park Royal and Greenford remained strong and within the Thames Valley, Reading was “extremely active” and Bracknell “greatly improved”, JLL says.
The level of Grade A vacancy began to fall after more than two years of stability: the overall vacancy rate remained at 8.7% in both the Thames Valley and West London markets as more Grade B space was returned to the market. JLL notes that the decline in Grade A space has given some developers an appetite for speculative development, with speculative construction under way in Heathrow, Park Royal, Southall, Uxbridge and Slough.
Headline rents for Grade A stock are now £14.00 per sq ft close to the Heathrow cargo terminal and are expected to rise to £15.00, but in the wider Heathrow area they remain at £12.50 – £13.00 per sq ft. Rents of £13.00 per sq ft are achievable in Park Royal and in Slough they remain at £11.75 per sq ft. Rent-free incentives for Grade A space on a five-year let range from nine to 12 months across the region, but JLL notes that nine months is now the norm in Park Royal, and this is tightening.
