Positive demand outlook for large industrial space in 2013 – GVA
The increase in take-up of industrial property towards the end of 2012 together with a rise in development starts and completions could signal the first signs of improvement in the sector, says GVA in new research. Demand for large industrial space remained resilient last year, with total take-up of large units (over 100,000 sq ft) reaching 25m sq ft in 2012 after 27m sq ft in 2011.
While demand from retailers last year was lower than in 2010 and 2011, when they dominated demand for distribution warehouses, this sector remains the main demand focus. “Much of the high street is under pressure but demand is led by the food retailers, internet activity and home delivery,” GVA points out.
Medium-sized warehouses are benefitting from the changes in the retail sector and are beginning to play a key part in the click-and-collect system operated by many retailers, and in so-called ‘dark store’ operations. GVA adds that demand is also rising for smaller distribution centres close to population centres, and says this may revive some smaller industrial estates.
Activity from manufacturers increased last year, with the automotive sector in the North West, North East and the Midlands seeing increased activity from auto manufacturers and their supply chains. Third-party logistics firms also provide a significant share of occupier demand, GVA notes. There is considerable variation in demand in terms of regions and size of unit: while the North West has recently had a very active design-and-build big shed market, the Midlands and North West have seen a resurgence in manufacturing demand, and the South East and Yorkshire have seen an increase in demand for medium-sized stock.
While overall availability has remained steady over the past two years, the supply of Grade A and good-quality secondhand industrial space has fallen significantly, GVA says. Design and build is likely to remain the predominant form of supply of new buildings this year, the firm says. GVA predicts continued speculative development on smaller buildings in prime locations, and a “very modest” return to big shed speculative development.
The limited new development activity will see supply shortages of prime stock in the next couple of years – already visible for prime stock in some markets – reducing vacancies and causing stronger rental growth. There are already signs of reduced incentives at the higher-quality end of the market and in some locations. However, GVA thinks headline rents are unlikely to grow significantly over the next few years.