Industrial Market Review

Q3 Industrial Market Pulse South Coast

A competitive industrial market is driving a surge in rental growth, falling incentives and longer lease term commitments, leading to increasing speculative development and investment in the South Coast region.

Adrian Whitfield, Lambert Smith Hampton’s industrial and logistics director, comments: “The market is now weighted towards landlords with long term leases of 10 – 20 years being secured at record levels of rent. As a word of caution, competition is being driven by a lack of stock, not just high demand. The key to achieving success with speculative development lies in delivering the right product in the right location whilst the current shortage of quality stock prevails.” 

In this issue:

Take-up remains robust despite a critical lack of supply

• Take-up in Q3 15 was over 600,000 sq ft, an increase of 40% on Q2 and comfortably above the five and ten year quarterly averages
• The number of transactions increased from 50 to 70 quarter on quarter
• For the year to date, 1.5m sq ft has been taken-up, putting 2015 on course to match 2014’s record high of 2.1m sq ft

Despite a critical lack of supply, in particular, of grade A space, industrial take-up remained robust on the South Coast during Q3 2015. A major pre-let of 120,000 sq ft at Voyager Park provided a significant boost to this, however even without this deal, take-up would still have exceeded the five year quarterly average of 387,000 sq ft.

With no sign of a let-up in demand, we predict that headline rents and capital values will continue to increase and tenant inducements reduce. 

Industrial supply running at less than 12 months worth

• Availability at the end of Q3 2015 was 1.6m sq ft, representing less than 12 months’ supply
• Of this, only 225,000 sq ft (14%) can be considered prime space

Our concern is that occupier requirements will remain unsatisfied, particularly in terms of units with secure yards, and businesses will look to move out of the region or simply tread water locally and expand their operations elsewhere.

Significant occupational transactions




 Tenant/purchaser  Rent  Deal information 
Voyager Park, Portsmouth 120,000 sq ft Roxhill/SEGRO Formaplex £7.50 per sq ft 15 year lease
D'Oriel House, Holton Heath, Poole  76,300 sq ft  Circle Property  Tower Supplies £3.80 per sq ft 10 year lease
Units 6 - 9 Brunel Road, Calmore
56,000 sq ft  Ankers and Rawlings Havant Fine Foods £7.00 per sq ft 15 year lease
2 Kites Croft, Segensworth, Fareham 35,058 sq ft  Aviva  Exsel Dyntecnu £8.00 per sq ft 10 year lease. No rent free period
Units 1 and 5 Fareham Business Park
33,175 sq ft  Oceanic Estates  Encon £5.50 per sq ft 10 year lease
Units 17 and 18 Oriana Way, Southampton 30,678 sq ft CBRE Global Investors DFS £8.50 per sq ft 10 year lease
Source: Lambert Smith Hampton

Rents reach record highs

• Rents on modern second-hand units that we reported in Q2 as being £7.00 - £7.50 per sq ft, have now achieved £8.50 per sq ft in Nursling on a fully refurbished unit with a secure yard – an increase of 10% over 12 months and a new record high
• On new units, including pre-lets and speculative developments, 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 at £9.00 - £9.25 per sq ft

The diminishing supply of industrial stock continues to drive forward increasing headline rents and reducing incentive packages available for occupiers. As a result, capital values remain on an upward trajectory.

Speculative development increases

We are seeing increased pre-let activity along the M27 corridor as a response to the critical supply shortage. At the end of Q3 2015...

• 35 industrial/warehouse units of 1,037 sq ft – 14,526 sq ft are for sale or to let at Glenmore Business Park, Chichester – due for practical completion in Q1 2016
• The construction of new B1/B2 and B8 units of 5,000 sq ft to 25,000 sq ft is due to commence in Q2 2016 at Pioneer Park, Portfield Road, Portsmouth
• Infrastructure works are progressing well at Dunsbury Hill Farm, Havant, and a new distribution centre of 80,000 sq ft is under offer to a major national retailer
• Planning consent was secured in Q3 for Evander Properties’ urban logistics scheme at South Central, Test Lane South, Nursling, which will comprise 40,000 sq ft, 50,000 sq ft and 116,000 sq ft units, each with secure yards
• At Kites Croft, Titchfield, off J9 of the M27, two new detached units of 9,000 and 30,000 sq ft are being built, with completion expected by Easter 2016

Key investment deals of the quarter

  • Units 5, 6 and 7 Watersmead Business Park, Littlehampton, were sold to a private investor for circa £19.75m, reflecting a net initial yield of 6.9%. These properties are let to The Body Shop International plc on three near-co-terminus full repairing and insuring leases with an average weighted unexpired lease term of circa 11 years.
  • The long leasehold interest at 2 Brunel Way, Segensworth, Fareham, was sold to Standard Life for £3.1m, reflecting a net initial yield of 6.86%. The property was let to Crown Worldwide Holdings Ltd with an outstanding rent review.
  • A sale and leaseback was agreed on Unit 30 Moorside Road, Winchester, at a price of £4.325m, reflecting a net initial yield of 6.25%. The property is let to Barclays and Mathieson Limited at a rent of £287,000 per annum for a term of 15 years.
  • Unit 45 Canberra Road, Nursling, Southampton, was sold to CBRE Global Investors for £3.3m at a net initial yield of 6.69%. The property is let to TNT Express (UK)Ltd for a term of 25 years from 1995 at a rent of £223,450 per annum.
  • Land at Cracknore Hard, Marchwood, totalling circa 2.5 acres was sold to Associated British Ports for £4.4m, reflecting a net initial yield of 6.34%. The land is let to TIP Europe until 2021 at a rent of £259,000 per annum.
  • Southmoor Lane, Havant, was sold to Mayfair Capital for £3.26m, reflecting a net initial yield of 6.7%. The property is let to Lewmar Marine until 2030 at a rent of £230,000 per annum.

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Adrian Whitfield

023 8071 3073

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Adrian Whitfield
Director - Industrial

023 8071 3073

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