Industrial Market Review

Q1 Industrial Market Pulse South Coast

Take-up remains constrained despite robust demand for industrial space in the South Coast region due to a lack of quality supply. Speculative development has commenced as developers respond to this supply imbalance, but not to a level that will fully satisfy demand.

In this issue:

Take-up constrained despite strong demand

•Industrial take-up on the South Coast in Q1 2016 was 392,970 sq ft, just 0.55% below the 395,176 sq ft seen in the previous quarter

•There was a more significant drop year-on-year, as Q1 2016’s total was 18.5% down on 482,448 sq ft in Q1 2015

•Despite this fall, take-up remains above both the 10 year quarterly average of 375,000 sq ft and the five year quarterly average of 387,000 sq ft 

Demand for good quality industrial space is strong on the South Coast and take-up would be considerably higher were it not hampered by a lack of supply.

Less than 12 months' supply available

•Supply remained relatively static year-on-year (1% fall) compared to the 1.95m sq ft that was available in Q1 2015

•Of Q1 16 supply, only 268,293 sq ft (14%) can be considered prime industrial space

There is just 12 months’ industrial supply available on the South Coast and the majority of this is dated, unrefurbished and unsuitable for modern occupier requirements.

Our concern is that these requirements and resulting employment benefits will either remain unsatisfied or businesses will be forced to move out of the region and expand their operations elsewhere.

Speculative development is now taking place, with Kites Croft, Daedalus Park and Pioneer Park all due to complete this year, and Test Lane South and Alpha Park receiving planning permission. Whilst this is encouraging, it will not fill the gap in the market, particularly for multi-let estates in prime locations.

Significant occupational transactions

Property  Size (sq ft) Vendor/landlord  Tenant/purchaser  Rent (per sq ft) Information 
Plot 2, Dunsbury Hill Farm, Havant 

80,000 Portsmouth City Council  FatFace  Confidential  Confidential 
Unit 1, Royal London Park, Hedge End 

59,000 Royal London Mutual Assurance  Hermes Parcelnet  £7.95  10 year lease
Units P and O, Griffin Industrial Estate, Totton

23,939 M&G Real Estate  Easystands Ltd  £7.00  10 year lease 
E1 Omega Enterprise Park, School Lane, Chandlers Ford  9,740 IPIF  Millbrook Healthcare  £8.75 (six months rent free)  10 year lease 

Quoting rents are starting to increase

•Rents have remained stable at £7.50 - £8.50 per sq ft

•We are now seeing more landlords refurbishing their units, which combined with a lack of stock is enabling quoting rents to start to increase

•Occupiers are resigned to rents increasing and incentives decreasing

Net effective rents are continuing their growth from 2015 and occupiers are resigned to increases both in the open market and at rent review. 

On new units, including pre-lets and speculative development, construction costs remain high despite steel costs reducing and we expect achievable rents to be £8.50 - £8.75 per sq ft along the M27 corridor, with prime headline rents quoted at £9.00 - £9.25 per sq ft.

Investment market overview

The first quarter of 2016 saw limited industrial investment opportunities along the South Coast, driven by economic uncertainty and the upcoming EU referendum. Consequently, this has prompted a number of off-market transactions with vendors approaching select investors to consider assets. 

The majority of funds remain acquisitive with a number of local authorities looking for opportunities.

Key investment deals

Anchorage Park, Portsmouth, was acquired by Paloma Capital for £6.4m. The property, comprising four units totalling 115,000 sq ft,  three of which are occupied by P&G Motors Ltd, were let at a rent of £567,100 per annum, (including vendor top-ups). 

Shirley Road, Southampton, was acquired by Test Valley Council for £5.525m. The property is let to Royal Mail (12.75 years unexpired) and Easy Gym (7 years unexpired).

Voyager Park, Portsmouth, was acquired by Cornerstone Real Estate for £12.1m. The property, part of the Wellington Portfolio, comprises 15 industrial/trade counter units constructed in 2006 and totals 86,000 sq ft.

Railway Triangle, Portsmouth, was acquired by DTZIM for £31m. The property, part of the Wellington Portfolio, comprises 36 industrial/warehouse units totalling 318,000 sq ft on a 21 acre site. The AWULT to break was 3.7 years.

Pioneer Park, Portsmouth: A speculative funding deal has been agreed between Chancerygate and Cornerstone Real Estate. The development, due for completion this year, comprises 70,000 sq ft with 25,000 sq ft under offer.

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Adrian Whitfield

023 8071 3073

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Adrian Whitfield
Director - Industrial

023 8071 3073

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