Industrial Market Review

Q2 Industrial Market Pulse South Coast

Supply constraint causes 26% drop in take-up and drives rental growth, development and investment

A critical lack of supply has caused a notable reduction in availability and take-up which, combined with a competitive market place, has led to a positive surge in rental growth, falling incentives and longer lease term commitments, driving speculative development and investment.

Adrian Whitfield, director of industrial and logistics agency for Lambert Smith Hampton, comments: "We have long predicted that a lack of quality industrial development would result in increasing rents and now for the first time in years, tenants are finding themselves in a competitive bidding process for a leasehold interest.

“Not only is this driving incentives down, 10-15 year leases with no breaks are becoming more prevalent too. Although speculative development is slowly starting to reach the construction stage, the planning system is hindering business growth and we are expecting the critical supply issue to worsen and prime rents to rise above their current level of £8 per sq ft."

In this issue:

Take-up decreases by 26%

• Although Q2’s transaction tally of 50 was a marginal increase on 48 in Q1, overall take-up decreased from 482,000 sq ft to 426,000 sq ft from quarter to quarter

• When compared with the same quarter in 2014, there was a fall in take-up of 26%
This significant decrease over the last 12 months is fundamentally owing to the shortage of good quality available stock along the M27 corridor. On a positive note, however, Q2 take-up is still well above the five yearly quarterly average of 387,000 sq ft.

Significant occupational transactions




 Tenant/purchaser Deal information 
Unit 1, Strategic Park, Southampton 68,431 sq ft F&C REIT Asset Management Amazon Confidential terms
Unit 1, Former Truvox Building, Southampton 39,481 sq ft Maytrees Ltd  Boutique Village    Short term let pending redevelopment
Fareham Reach, Gosport 41,800 sq ft Pavilion Property Trustees LLP Tomorrowtop Ltd, Capstone Turbine and SES Headline rent £8.50 per sq ft 
17 - 18 Oriana Way, Southampton 35,592 sq ft Fresca Developments/Blair Estates  Electricity Supply Nominees c/o CBREGi  Acquisition
Unit 1, iO Centre, Segensworth 15,287 sq ft   Forelle Estates Righton Ltd New 10 year lease 
Source: Lambert Smith Hampton

Supply continues to reduce across the board

• Industrial supply in the region fell by 13%, from 1.915m sq ft in Q1 2105 to 1.645m sq ft in Q2

• Prime space availability has reduced from 160,000 sq ft in Q1 to only 67,000 sq ft in Q2

• Availability is down 15% in Southampton and 11% in Portsmouth

• No modern units of 30,000 sq ft + currently available on the M27 corridor

The ‘shed’ market is struggling to continue its previous momentum, due not to lack of occupier demand but to the critical shortage of availability.  The market is now weighted in favour of landlords and tenants are having to plan far ahead in order to secure space.

Prime rents increase in response to tightening supply

The diminishing supply of industrial stock has inevitably had a knock-on effect - headline rents are increasing and there has been a reduction in the incentive packages available for occupiers.

Rents on modern second hand units have typically improved 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; in particular, those refurbished units available with secure yard areas are achieving in excess of £7.50 per sq ft.

On new units, including pre-lets and speculative developments faced with higher construction costs, we now expect rents to rise to £8/8.50 per sq ft along the M27 corridor.

Speculative development kicks off

Proven occupier demand and lack of supply of modern units on the south coast has given developers and institutions the confidence to take these first steps towards development...

• Planning consents are expected in Q3 on Test Lane South, Nursling, and Alpha Park, Chandlers Ford

• Two new speculative units of 26,000 sq ft and 10,000 sq ft are shortly to be built at Kites Croft, Titchfield

• Infrastructure works are progressing at Dunsbury Hill Farm, Havant, where the highway access and estate road are under construction – this 50 acre site can accommodate up to 650,000 sq ft of new B1/B2/B8 employment space

• A new industrial development is planned at Trident, Harts Farm Way by Durngate which can accommodate build to suit requirements from 335,000 to 70,000 sq ft, with units ready for occupation from Q3 2016

Investment market heats up

Rental growth coupled with a lack of stock is fuelling demand for good quality industrial investments on the south coast, resulting in greater yield compression. This strong market performance is a catalyst for forward funding opportunities.
A number of properties have been brought to the market in Q2, all of which are already under offer...

• Unit 2 Brunel Way, Fareham - let to Crown

• Andover Commercial Park, Andover - let to the Co-Operative Group

• Watersmead Business Park, Littlehampton - let to the Body Shop

• Units 1 - 4 Woodside Road, Eastleigh - let to Central Ambulance Service NHS Trust

We anticipate a strong second half of the year with the completion of these deals and the launch of new opportunities in September following a busy reporting period.

In addition, two forward funding pre-let opportunities are currently on the market - Cobham Gate Business Park (let to Geopost on a 25 year term at a quoting price of £10m) and Aviation Business Park, Bournemouth, (let to Curtiss Wright Controls (UK) Ltd on a new 29 year lease at a quoting price of £20.77m).

Key investment deals of the quarter

  • D’Oriel House, Holton Heath Trading Park was sold by Circle Property Trading Ltd to Threadneedle Property Investments Limited for circa £4.412m, reflecting a net investment yield of 7.5%. The property is let to Tower Supplies on a new 10 year lease.

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Adrian Whitfield

023 8071 3073

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Adrian Whitfield
Director - Industrial

023 8071 3073

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