Industrial Market Review

Q1 Industrial Market Pulse South Coast

South Coast industrial market shows resilience despite supply constraints in Q1 2015

Lambert Smith Hampton's quarterly South Coast industrial market pulse reveals a positive take up performance that, together with a critical lack of supply, is driving rents up, incentives down and speculative development and investment forward.

Adrian Whitfield, Director of Industrial and Logistics Agency for LSH, comments: "We have long been predicting that a lack of quality industrial development would result in increasing rents and this is exactly what is happening. Although speculative development is slowly starting to reach the construction stage, we are expecting the critical supply issue to worsen and for prime rents to increase to over £8 per sq ft."

In this issue:

Resilient take up despite supply constraints

Following a record high take up of over 2.1m sq ft in 2014, take up was 482,000 sq ft in Q1 2015, a 7% decrease from the same quarter in 2014. This decrease is fundamentally due to the shortage of good quality available stock along the M27 corridor. Q1 take up still compares favourably to the long term trend though – 25% up on the five yearly quarterly average of 387,000 sq ft.

The number of transactions in Q1 fell from 80 to 48 when compared with the same period last year, but it is noticeable that the average size of transaction in sq ft has increased by 47%.

Only three lettings of prime space occurred in Q1. This reflects the lack of availability, rather than a lack of occupier demand, with occupiers having to settle for modern quality second-hand buildings, albeit often following a good refurbishment.

Significant occupational transactions


Property 

Size

Vendor/landlord

 Tenant/purchaser Deal info 
Units 2, 3, 6 and 7, Fareham Business Park, Gosport 64,953 sq ft Oceanic Estates North Sails 15 year lease
Unit F, Omega Enterprise Park, Chandlers Ford 26, 911 sq ft IPIF  Aspray Transport     10 year lease with a 5 year break
Units 7 and 8, Matrix Park, Segensworth 24,778 sq ft IPIF  Amari Plastics 10 year lease with a 5 year break 
Unit 8 and 9, Murrills Industrial Estate, Portsmouth 20,452 sq ft CBRE Global Investors  Rich Products   
Source: Lambert Smith Hampton

Prime rents increasing and incentives reducing

The diminishing supply of industrial units available has inevitably had a knock-on effect. Headline rents are increasing and there is a reduction in incentive packages available for occupiers.

Rents on modern second hand units have typically increased from an average of £6.50 per sq ft to £7.00 - £7.50 per sq ft as demand is exceeding the supply of units, particularly those available with secure yard areas, which continue to generate greatest occupier demand.

On new units, including pre-lets and speculative developments facing higher construction costs, we expect rents to rise to in excess of £8 per sq ft.

Overall industrial supply falls

Industrial supply in the region fell by 10% to 1.915m sq ft compared with Q4 2014. The ‘shed’ market has continued its momentum throughout Q1 2015 and we expect this level of activity to continue for the rest of the year.

The proven occupier demand and lack of supply of modern units on the South Coast are giving developers and institutions the confidence to now take the first steps towards development. There is evidence of this with planning consents expected to be secured on Test Lane South, Nursling and Alpha Park, Chandlers Ford during Q2 in 2015. Two new speculative units of 26,000 sq ft and 10,000 sq ft are also to be built at Kites Croft, Titchfield.

Region a popular destination for industrial investment

The South Coast industrial investment market continues to prove popular with both investors and property companies, with a high number of deals completing at the end of 2014. This performance has moderated to a more sustainable level in 2015 with greater uncertainty, both economically and politically, surrounding the general election.

The industrial sector has continued to be one of the most favoured commercial property sectors in which to invest, particularly in the south east, and even more so over the last 12 months because we are beginning to experience significant rental increases as a result of shortage of supply.

Key investment deals of the quarter

• Wartsila, Kingscroft Business Park, Havant, was sold by CBREGI to Helical Bar for circa £3m, reflecting a NIY of 7.5%. The property is let to Wartsila UK Ltd at a current passing rent of £238,000 pa with an unexpired term of 4.75 years.

• Jewson Warehouse, Littlehampton, was sold to a small charity for £2.575m, reflecting a NIY of 6.43%. The property is let to Wolseley UK Ltd and has an unexpired term of 10.4 years and a passing rent of £175,230 pa.

• 16/17 Parham Drive, Eastleigh, was sold to Henderson UK PUT by Harwood Anthony Propco 12 Limited for £3.275m, reflecting a NIY of 6.32%. The property comprises 3,795 sq m and is let at a rent of £220,000 pa.

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Adrian Whitfield

023 8071 3073

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Adrian Whitfield
Director - Industrial

023 8071 3073

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