GVA reports that following sustained occupier take-up and a record £10.7 billion investment in industrial space, demand continues to outstrip supply

Type News

Date 27/02/2018

After several years of sharp growth against a backdrop of wealth protection, low returns and demand for secure assets, the popularity of the industrial sector with investors is now well established as it continues to provide a very positive growth story to drive returns, leading to a record investment volume of £10.7 billion in 2017 and accounting for 17% of all commercial property transactions.

However, as its position in the investment market continues to grow, the occupier demand that underpins the sector was far more diverse than the previous year, when overwhelming demand from internet retailers led to a record 27.5 million sq ft of take-up in 2016.

In its latest Industrial Intelligence research bulletin, GVA reports that take-up of modern and new units over 100,000 sq ft totalled 20.6m sq ft. This was unsurprisingly below last year’s record level, but close to the 10 year average of 21.1 million sq ft. Primary demand in this sector came from non-internet retail operators, which accounted for 28% of take-up and included significant lettings to Lidl at Gateway Peterborough and H&M at Magna Park, Milton Keynes. The manufacturing sector also benefitted from a weaker pound boosting export markets, leading it to comprise 25% of take-up, while third party logistics was supported by Eddie Stobart agreeing 1.7 million sq ft of space in five deals, mainly close to the golden triangle, to account for 24% of take-up.

Looking ahead, the most significant factor for big sheds will be issues around supply. Current available stock stands at 24.3 million sq ft and will only yield approximately 14 months’ supply. However, structural changes in the retail sector will maintain pressure on demand, particularly for urban logistics where space requirements are expected to increase in step with the 10% annual increase in online retail sales. This will mean further stress on industrial land availability which is competing with higher value uses, and will maintain pressure on land values in prime areas.

David Willmer commented “While there is still a significant appetite for speculative development, there has been a slight reduction in new starts due to a combination of fewer opportunities as land availability tightens and some funds ensuring take-up of existing schemes before starting further development. Therefore supply is likely to remain constrained, although new entrants in the market have announced ambitious plans and are bidding competitively for sites. Realistically, it is likely that much of the new supply to come onto the market over the next few months will instead come from mid-size speculative development in the 30,000 to 80,000 sq ft space.”

Nick Roberts commented: “Industrial property continues to provide an attractive income return in a low growth, low interest rate environment, meaning its popularity with investors has only grown over the last year. However, the low vacancy rates that make such a strong investment case continue to pose a problem to occupiers as demand in most regions outstrips supply.”