The commercial property sector tends to be a pretty telling bellwether of the overall economic environment. Indeed, when lettings began to dry up in 2007 it was one of the earliest signs that economic turbulence was on its way.
Today the signs paint a far healthier picture with Lambert Smith Hampton's (LSH) latest West Midlands Industrial and Logistics Market Review indicating that the economy is in increasingly rude health.
The review highlights at least seven deals of more than 100,000 sq ft, with one of the biggest seeing Dunelm taking 525,000 sq ft at Prologis Park Sideway, close to Junction 15 of the M6 at Stoke-on-Trent.
Other deals of note included Jaguar Land Rover snapping up the extension plot at Prologis Park Midpoint in Minworth, taking their total occupation to 477,000 sq ft, and Screwfix taking 230,000 sq ft at DC4 Prologis Park Midpoint in Stafford.
Speculative development underway across the region
The majority of the deals have fallen within the fabled ‘golden triangle’ of the M6, M1 and M42, but the continuing demand for space in the region and a lack of available land means developers are moving slightly off the beaten track to satisfy demand from potential occupiers, according to Matthew Tilt, Associate Director, Industrial and Logistics, at LSH in Birmingham.
“There is a pipeline of speculative development that will be coming to market over the next 12-18 months but the lack of sites within the golden triangle means developers are looking wider afield,” said Matthew.
“The challenge is that much of the big-box development in the region is pre-let so there will remain supply issues in that part of the market for some time to come.
”In the mid-box sector we are seeing some welcome speculative builds with developers like St Modwen, Goodman, and IM Properties very active in the region with schemes underway at The Hub in Birmingham, Lyons Park in Coventry, Birch Coppice in Tamworth, and Burton Gateway in Staffordshire.”
In the big-box sector, a host of major pre-lets are driving development in the region with Prologis set to start work on DC7 Ryton imminently having secured deals of more than 450,000 sq t with UK Mail Plc and Jaguar Land Rover.
IM Properties is developing two units at Birch Coppice in Tamworth that will become available in late 2016 after agreeing major deals of more than 900,000 sq ft with Euro Car Parts and UPS, while Chrome 102 in Minworth is due for completion in February 2016 after Bericote agreed a deal with Asda for Unit 1. Silver Bullet has been completed at Hams Hall, with plans for a second unit for the site.
Pendulum swings in favour of landlords
An on-going lack of supply means that there are currently limited opportunities for occupiers – big and small – with multi-let industrial estates currently experiencing historically low vacancy rates.
Fradley Park in Lichfield currently has three available units ranging from 29,250 sq ft to 126,580 sq ft. The largest available unit in the region is the former UK Mail premises in Wolseley Drive, Birmingham, with another 164,000 sq ft available at Minworth Central and 165,000 sq ft at 2010 Middlemarch, Coventry.
And the dearth of quality accommodation means that landlords currently hold the whip hand over occupiers, according to Matthew.
“It is undoubtedly a landlord’s market,” he said. “The shortage of grade A space means we are seeing landlords holding out for longer lease terms, with up to 15 years with no break options now becoming the norm for prime buildings.
“We are also seeing a tightening of tenant incentives generally across all size ranges and rents of £6.50 per sq ft are now being achieved - and they could well go beyond that in the short to medium term and help drive what is an already buoyant investment market.”
A positive outlook as investment in industrial sector continues at a pace
Investment within the industrial sector has had one of its strongest half years for almost a decade with resilient occupier demand and limited available stock compressing yields across the board. Notable deals included the sale of B&Q’s distribution facility in Worksop for £89.75m, achieving a yield of 5.13%, and the New Look sale at Lymedale Business Park for £30.5m with a yield of 5.9%.
“In short, it is a very positive story,” said Matthew. “The wider West Midlands still remains one of the strongest industrial markets in the UK, and is being driven by the logistics and, in particular, the strong automotive sector, and the evolving retail sector.
“We are also expecting further announcements on speculative schemes in the near future, which will help re-balance the current supply and demand mismatch, and if we can solve this issue then the region looks in very good shape going forward.”