M1 Corridor Industrial Market – half year review

Industrial

M1 Corridor Industrial Market – half year review

01/07/2012

Luke Tillison

The UK economy continues to suffer from the global impact of the financial crisis, and Milton Keynes is no exception.

The last 12 months have seen market conditions harden; enquiry levels have declined along with market confidence, and stock levels continue to be squeezed - more noticeably within the 15,000 – 30,000 and 50,000 sq ft plus sectors.

At the smaller end of the market, sub 10,000 sq ft activity has remained relatively robust, with demand from cost savvy tenants looking to secure low cost warehousing for companies typically in their infancy. Upon closer analysis, take-up between 4,000–7,000 sq ft has been weak in comparison to last year, with less than ten transactions completing within this size bracket.

Bleak outlook for total take-up figures 2012-13

Total take-up figures for 2012-13 are expected to be considerably down compared to 2011-12. At present approximately 260,000 sq ft has completed with a further 400,000 sq ft under offer. The contrast in these figures is partly due to market confidence, but mainly due to a lack of availability within the 100,000 sq ft plus sector, with only Paragon (140,000 sq ft), MK180 (179,162 sq ft) and DC1 (209,949 sq ft) on the market.

Within Milton Keynes and surrounding areas there remain multiple sites available for ‘design & build’ opportunities which are ‘oven ready’. However there is still no speculative development and this does not look set to change over the next 2 years. With the continued lack of grade A space, it is plausible that if a speculative build was undertaken a tenant could be found quickly and at a premium rent.

Trend for five year leases with option to break

Expectations in respect of lease terms have not changed, with many companies now chasing short term contracts with flexible lease terms. The current trend comprises a five year lease with tenant option to break at the end of the third year, or a ten year lease with tenant’s option to break at the end of the fifth year. Ten year terms are a rarity, and if granted, typically command large incentives.

Although activity levels are low, applicant to tenant conversions remain high; thus confirming tenant requirements are typically of a serious nature.

Lack of supply to prevail over next six months

Over the next six months, the lack of supply will prevail. Rentals for secondary stock will stagnate, whilst grade A rental values are likely to increase. Milton Keynes remains a challenging market, however with its convenient location and fantastic road links, the industrial sector continues to perform.

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