Industrial Market Review

South Coast Industrial Market Pulse Q1 2017

The industrial market started 2017 buoyantly with a new high for quarterly enquiries. Take-up was consistent with the previous two quarters where prime stock being removed from the market is acting as a long-term impediment of prime supply on the South Coast.

Steelworks have been completed on some of the speculative developments in the region, which will assist in satisfying demand and will provide a much-needed boost to confidence. Additionally, as the region’s larger companies expand into bigger premises, secondary stock will be released back into market, thus providing churn for small and medium enterprises.

In this issue:

Enquiries up by almost 40%

Enquiry levels for Q1 saw an increase of 38.79% compared with Q4 2016. This was 9.83% higher than the previous high seen in Q1 2015. This increase was centered around the Southampton market, due to construction on two new schemes bringing space to the market -  at Alpha Park, Chandlers Ford, and South Central, Nursling.

This is positive news for the South Coast industrial market after a slower end to 2016, following the Brexit referendum and the quieter Christmas period. The result of this focuses developers on providing much-needed supply to satisfy this demand, and further highlights the South Coast market’s buoyancy in uncertain times.

We envisage that enquiry levels will remain consistent while these developments are under way and then slowly drop off towards Q4 of 2017, when supply begins to answer demand.

Demand is consistent despite uncertainty and supply issues

Take-up in the South Coast region was 432,837 sq ft in Q1 2017, a decrease of 1% from the 439,490 sq ft transacted during the previous quarter but a significant increase of 12.94% on Q1 2016.

In comparison with Q1 16, the South Coast witnessed a rise of 18.13% in the number of transactions.

There is strong demand for freehold properties where the vast majority of stock being marketed is quickly placed under offer, and it is not uncommon for a number of parties to be contesting the same product. This is due to the lack of availability across the region.

We are also seeing typical lease terms increase, with length of term certain increasing and becoming more common as occupiers seek to secure in-demand space. In tandem with this, there is a marked decrease in rental incentives as a lack of stock continues to define the region as a competitive market.

Significant occupational transactions

Property 

Size (sq ft)

Landlord

Tenant

Rent (per sq ft)

Terms

Unit 500 Fareham Reach Business Park, Gosport 

25,296

Britel Fund Trustees

CPG Logistics Ltd

£6.50

10 years

Unit 6 Kenwood Business Centre, Havant 

16,267 

Dunedin Estates Havant Ltd

GRP Solutions Ltd

£6.00

10 years

Units 4 - 6 Fareham Trade Park

14,644 

Oceanic Estates

Strong Room Self Storage

£10.00

5 years

Unit 5 The Quadrangle, Abbey Park Industrial Estate, Romsey 

13,921

Confidential

RedLux Ltd

£7.75

Sub-lease to 2020

Unit 39 Fareham Industrial Park, Fareham 

13,000

Standard Life Investments Ltd

Professor Puzzle

£6.38

10 years


The supply tide turns

Availability within the South Coast industrial market was 2,142,164 sq ft at the end of Q1 2017, an increase of 4.85% from Q4 2016 (2,038,339 sq ft) and an escalation of 9.88% on Q1 2016 (1,930,464 sq ft).

We can attribute this increase with a new pipeline of speculative developments under construction along the South Coast. Availability of prime stock in Q1 2017 stood at 534,563 sq ft, representing 24.95% of the total availability, a rise of 4.85% on the previous quarter, when prime stock stood at 2,038,339 sq ft. It also represents a significant 11.0% year-on-year-rise on Q1 2016.

New prime opportunities resulting in the increase in supply within the Portsmouth region include the Solent Airport development at Daedalus, Lee-on-the-Solent, where 16 acres of prime commercial space across two business parks located within the Solent Enterprise Zone is available to the market. This presents a rare opportunity for occupiers to purchase or lease sites with outline planning permission.

Also in Portsmouth, the speculative Pioneer Park development on the established Airport Industrial Estate sees a total of 74,190 sq ft of industrial and warehouse units now available.  In addition, the Dunsbury Park scheme, in a prime location at junction 3 of the A3(M), offers bespoke warehouse, manufacturing and office space from 20,000 to 200,000 sq ft on a built-to-suit basis.

Further schemes contributing to the increase of supply, and in particular, prime stock within the Southampton and surrounding markets include Alpha Park, Chandlers Ford and Mountpark, Southampton, where approximately 525,000 sq ft is under development.

At the alternate end of the spectrum, there is a decrease in the total availability of secondary stock. Presently standing at 1,607,601 sq ft, secondary stock has decreased dramatically from 1,846,824 sq ft in 2015 - a drop of 14.88%.

Until new schemes are built and occupiers begin the merry-go-round of expanding/downsizing and relocating, secondary stock will continue to be digested by those companies with immediate requirements.

Frames are up and development is full steam ahead

Steel frames are visible on two of the three units under construction at Bericote Properties’ speculative scheme, Alpha Park, Chandlers Ford, funded by Blackrock. The scheme consists of three units of 20,000 sq ft, 45,000 sq ft and 80,000 sq ft which are due for practical completion in September of this year.

At Peel Logistics’ new development in South Central, Nursling, which has been funded by Rockspring, construction is imminent and contractors have arrived on site. This development will provide three logistics units of 40,000 sq ft, 50,000 sq ft and 117,000 sq ft, all with secure yards. With access being adjacent to the M271, they will provide grade A accommodation at the gateway to the Docks.

Following Mountpark Logistics’ pre-let of a 47,500 sq ft at its new scheme on the former Ford site, at Wide Lane, Southampton, in Q4 2016, steelworks are being erected for one of the speculative units with groundworks underway on the remaining two.

Rents are facing upwards pressure

The decrease in secondary stock levels has resulted in rents rising. This applies to smaller secondary stock, however, the largest increase is for units of 20,000 sq ft and above. Due to pent-up demand, rents levels per sq ft on refurbished units of this size are exceeding those in the 5-10,000 sq ft bracket. This is uncommon compared with previous years.

A further notable trend driven by demand is the continued rise in rent levels of refurbished units, closing the gap between rents of refurbished and new build space. Portsmouth has tended to trail behind Southampton in this regard but the regional gap is narrowing.

Under 5,000 sq ft 

Prime capital value (per sq ft)

Prime headline rent (per sq ft)

Secondary capital value (per sq ft)

Secondary headline rent (per sq ft)

Portsmouth and Havant

£130.00 - £135.00

£10.00

£85.00 - £95.00

£8.00

Southampton and Eastleigh

£120.00 - £140.00

£10.00

£90.00 - £100.00

£9.00

Bournemouth and Poole

£130.00 - £150.00

£9.50

£95.00 - £105.00

£8.50


5,000 - 20,000 sq ft
 
Prime capital value (per sq ft)

Prime headline rent (per sq ft)

Secondary capital value (per sq ft)

Secondary headline rent (per sq ft)

Portsmouth and Havant

£125.00 - £135.00

£9.25

£70.00 - £80.00

£7.50

Southampton and Eastleigh

£120.00 - £140.00

£9.25

£80.00 - £95.00

£8.00

Bournemouth and Poole

£115.00 - £120.00 

£8.50

£85.00 - £95.00

£7.50


Over 20,000 sq ft 

Prime capital value (per sq ft)

Prime headline rent (per sq ft)

Secondary capital value (per sq ft)

Secondary headline rent (per sq ft)

Portsmouth and Havant 

£120.00 - £130.00

£8.75

£70.00 - £80.00

£7.25

Southampton and Eastleigh

£115.00 - £140.00

£9.25

£70.00 - £85.00

£8.50

Bournemouth and Poole
 
£110.00 - £120.00

£8.25

£65.00 - £75.00

£7.25


Investment market review

After a strong 2016 for the South Coast industrial sector, the start of 2017 has seen a number of opportunities brought forward, in particular, within the multi-let sector.

Properties currently on the market are…

The Lodden Centre, Basingstoke - for £9,750,000 (7.50% net initial yield)

The Triton Centre, Romsey - for £3,750,000 (6.80% net initial yield) 

Trinity Court, Totton - for £4,000,000 (6.00% net initial yield)

It is anticipated that each of these will achieve considerably better than its quoting value, given the interest captured and a back-drop of genuinely strong investor demand.

The South Coast industrial sector will continue to be competitive, with strong interest seen from institutions, property companies and, in particular, local authorities with prime yields now standing at circa 5%. 


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Southampton, Adrian Whitfield, industrial agency
Adrian Whitfield

023 8071 3073

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Adrian Whitfield
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