Landlords tightening terms on industrial lets – C&W
The balance of supply and demand in the UK market for industrial property to let has begun to tilt in the favour of landlords for prime space, says Cushman & Wakefield in its latest report on the sector. It has found that a hardening of incentives and terms is still prevalent in this market, as demand from retailers has held up well despite the economic downturn while the development pipeline remains constrained.
The need to reduce costs and the rise of online trading are affecting retailers, but C&W says that well-positioned retail occupiers are going ahead with expansion plans and are seeking well-located, high-quality space. As well as big-box demand, interest has also reportedly held up well for the multi-let estates segment, the firm says.
Speculative development is still scarce thanks to the uncertain economic climate and tight financing conditions. “Although there are some pockets of activity in the West London and Thames Valley markets, a lack of supply continues to characterise the market,” C&W says. Active occupiers are therefore driving the market for build-to-suit opportunities, it adds.
C&W expects current activity levels to hold firm in the medium term. It also expects rental levels to remain steady, although it forecasts that tighter terms and incentives are likely to become more common.
Investment activity in the industrial sector has been restricted as much by a lack of available investment-grade property as by the volatile economic climate, the firm says. It notes that yields on 25-year leased prime distribution units hardened by 25 basis points during the third quarter, which is the first movement seen since the final quarter of 2009. “The pressure on prime yields will be maintained as the lack of well-located, high-quality stock remains an issue, although further compression is unlikely before the end of the year,” C&W adds.
