Industrial Market Review

South Coast Industrial Market Pulse Q3 2017

With reports of new car sales decreasing for the sixth month in a row, and manufacturing leading a slowdown in UK business output, we are pleased to report positive tones from the South Coast industrial market for Q3.

Q3 2017 saw a healthy increase in take-up, particularly for prime stock, and a significant chunk of available stock went under offer, resulting in encouraging signs for businesses and developers alike to complete their respective schemes across the region. This in turn will soak up some pent-up demand which has remained stagnant for a significant period of time, although there is ongoing concern that there is a limited development pipeline behind these current schemes, once they are occupied.

Recent news of retail giant, IKEA, exploring the idea of using third parties for selling their products online could mean a boost to the storage and distribution warehousing economy. Will this have an impact on the South Coast market, with five IKEAs located in the South?

In this issue:

Enquiry levels increase despite a cool summer

Following a record quarter for new enquiries in Q1 and a dip in the Q2 total, enquiry levels over the historically quieter period have, once again, risen to a total of 134.  This reflects a level 19.6% higher than in the same period last year and higher than any quarter in 2016.

The biggest increase was in the sub-5,000 sq ft category, which is why the enquiry levels increased on the foundation of the previous quarter. This is reassuring news, showing that small and medium enterprises remain active, encouraging the churn of transactions, which in turn will have a knock-on effect on the larger size categories. 

Take-up spikes in Q3

Total take-up was 504,359 sq ft in Q3, reflecting an improvement of 20.27% from the previous quarter.  Furthermore, year-on-year there has been an improvement of 128,430 sq ft or 34.16% in take-up. This can be witnessed in the spike of prime transactions as speculative developments complete and more come out of the ground, satisfying that pent-up demand.

Prime take-up peaked, reaching amongst the highest levels witnessed in recent years, reflecting the surge in new development in the region. Total prime take-up for the quarter stood at 228,074 sq ft, an increase of 124,236 sq ft or 45.53% on the previous quarter. Year-on-year there was a remarkable rise of 209,281 sq ft or 1,213.61%, underling the lack of supply in previous years. This correlates with our coverage on the previous quarter and is witnessed in some of the key transactions.

Take-up of secondary stock has fallen further from Q2, witnessing a decline of 39,243 sq ft or 12.44%. Year-on-year this shows a decline of 80,851 sq ft or 22.64%. An argument for this decline could be businesses being tempted to take prime space rather than secondary, as the gulf between the rents is marginalised, as witnessed in previous quarters.

Significant occupational transactions

Property
 
Size (sq ft)
Landlord

Tenant

Terms

Rent (per sq ft)
Stoke Park, Tower Lane, Eastleigh SO50 6NZ 
27,166
 
Hudsons Associates Freightroute Ltd 10 years, 5 yearly reviews

£7.91

Unit 1 Alpha Park, Chandlers Ford, Eastleigh SO53 4ZR
19,414 Blackrock Real Estate DX Network Services Ltd 10 years, 5 yearly reviews £9.50
Unit 2 Mountpark, Wide Lane, Southampton SO18 2NQ

60,000


Mountpark Logistics EU Sarl

Berendsen plc

25 years, no rent free

£9.50

Unit 3 Mountpark, Wide Lane, Southampton SO18 2NQ
100,660 Mountpark Logistics EU Sarl

CooperVision

15 years, 10 year break

£9.00


Supply decreases

As take-up increased, availability of stock on the market dipped slightly at 2,200,084 sq ft, a drop of 33,077 sq ft or 1.48% on the previous quarter.  However, year-on-year there has been an increase overall, of 134,345 sq ft or 6.50%, which we attribute to construction of new schemes reaching completion and being readily available to the market.

As expected, given the level of take-up, Q3 figures show that there was a decrease in prime stock from the previous quarter, at 452,727 sq ft, representing a reduction of 27.5% or 171,761 sq ft on Q2. However, year-on-year there has been an overall increase of 90,403 sq ft or 24.95%, which strengthens our views above.

Secondary stock saw an increase in availability, totaling 1,608,673 sq ft; a rise of 138,684 sq ft or 9.62% on the quarter. Year-on-year, however, we have witnessed a small increase of 43,942 sq ft or 2.58%.

During Q3, we monitored those properties currently listed as “under offer”, which amounted to circa 300,000 sq ft or 13.6%, of the total available stock. If we consider that 504,359 sq ft was let or sold in Q3, then the market is on track to perform at a similar level in Q4.  Looking at the total take-up in 2016, which was over 1.8m sq ft, at the end of Q3 2017, we have recorded 1.2m worth of transactions.  Therefore, we anticipate the market will show a take-up similar to what was achieved in 2016. 

New development round-up

Canmoor’s speculative development of Merlin Park in Portsmouth, will provide 91,030 sq ft of prime industrial and logistics space across seven units, although some units can be combined. Construction of the scheme is due to complete in mid 2018.

Fareham Borough Council is currently constructing six new business hangars on its scheme at Solent Airport, Daedalus, Lee-on-the-Solent, The 6,000 sq ft hangars, each with their own airport apron, are due for practical completion in Q1 2018 and will be suitable for aviation occupiers, who require direct airside access.

Construction of Bericote Properties’ speculative scheme, Alpha Park at Chandlers Ford, funded by Blackrock, has completed, with the official launch happening in late October. Unit 1 has already been successfully let to DX Network Services and there is significant interest in the remaining two units of 45,000 and 84,000 sq ft respectively.

At Peel Logistics’ new development, South Central in Nursling, financed by Rockspring, highways works have completed, resulting in the widening of Test Lane. Construction of the units has now commenced, with completion scheduled for May 2018. The development will provide three B8 logistics units of 40,000 sq ft, 50,000 sq ft and 117,000 sq ft, all with secure yards having access adjacent to the M271; they will provide grade A accommodation at the gateway to the Docks.

As reported above, two further lettings completed on the first phase of Mountpark’s new scheme, on the former Ford site, at Wide Lane, Eastleigh, during Q3. Berendsen plc and Coopervision plc will take up occupation in 2018. Following this success, Mountpark Logistics has acquired the adjacent site of 9.7 acres.  Phase two will comprise four units ranging from 67,000 to 106,000 sq ft.

The last remaining site at the highly successful Hamilton Business Park at Hedge End, Southampton, is currently being developed by Hargreaves Properties.  Negotiations are in hand with a select number of companies to lease the whole 24,760 sq ft, whose construction will complete in Q4 2017.

Investment market review

Demand for industrial investment properties on the South Coast remains robust. As mentioned in our last pulse, we highlighted one particular multi-let asset that had recently been brought to market and in which we anticipated very strong interest. As expected, and unsurprisingly, Carvers Industrial Estate, Ringwood, comprising 14 units let to 12 Tenants, with a AWULT of 3.70 years and a passing rent averaging c.£7.23 psf, was purchased by a UK Fund for c.£7,060,000 (4.93% NIY) following a competitive bidding situation. This level was nearly £1.5m ahead of quoting and highlights the depth of appetite for good quality multi-let industrial estates along the South Coast.

Furthermore, having been recorded as ‘under offer’ in Q2, Downlands Industrial has now also successfully completed, at a level of £24.35m, reflecting a NIY of 5.65%, which is comfortably ahead of its quoting level of £20,000,000.

Other key transactions include a UK Fund’s purchase of K60 Lister Road, Basingstoke for £9,600,000 (5.12% NIY). The unit was a rare freehold tenure for Basingstoke and was single-let to Bunzl UK Limited with c.5 years term certain.

Finally, Eastleigh Works, comprising a 48-acre estate, the majority of which is let to train operator, Arlington Fleet, went under offer at a level that we understand exceeds the £20m quoting level.

Key assets being brought forward to market this quarter include Stoke Park, Eastleigh, totaling 83,846 sq ft and let to DHL and Freightroute, with an AWULT of 5.57 years, at a passing rent of £592,580. The quoting level is £8,550,000 (6.50% NIY) but we anticipate this level being exceeded.

The majority of buyers and interest continues to come from UK Funds and local authorities. We anticipate high levels of competition for Industrial assets will continue.

Want more information about this Snapshot?

Southampton, Adrian Whitfield, industrial agency
Adrian Whitfield

023 8071 3073

Email me

Regions

Contact us now

Adrian Whitfield
Director - Industrial

023 8071 3073

How can we help?

Submit