Acute shortages in prime industrial stock could drive speculative development in certain areas as early as the end of 2010, as reported in our latest industrial and distribution research report.

Michael Alderton, Director of Industrial and Logistics, said: “In certain areas, speculative development will return earlier than expected but only on a restricted basis, and development completions are not expected to outstrip demand.”

Take-up dominated by units in excess of 100,000 sq ft

Our National Industrial and Distribution Report 2010, also reveals that the occupational market exhibited early signs of recovery in the latter half of 2009, as take-up improved to record a 10% increase on the previous year’s level. Take-up was dominated by large transactions with units above 100,000 sq ft accounting for 23% of all industrial transactions. 

Looking ahead, take-up is expected to improve further as the economic recovery gathers momentum which in certain sectors and areas where supply of good quality stock is in short supply could lead to a rent bounce in the short to medium term.

Michael said: “Our findings are certainly encouraging and we are starting to see real improvements in the industrial sector, however, there is still a huge oversupply of second-hand space in the market as inefficient businesses continue to suffer. This, combined with new space, has pushed overall availability up to 320m sq ft, an increase of 22% on the end 2008 level.”

The Midlands saw the largest increase in take-up over the year, more than doubling to record 22m sq ft of transactions. In comparison, Scotland fell by -18%.

Retail sector drives demand

The latter part of 2009, saw demand for large distribution units pick up. The main focus of demand has been from the retail sector, with the major retailers and grocers continuing their drive towards achieving the perfect supply chain. This year has also seen the emergence of waste and recycling as a major sector demanding space.

The level of demand expected from this sector is significant and, encouragingly, many operators can fit within standard warehouse premises. Distribution is set to recover as retailers continue to improve their supply chain in order to benefit their bottom line profits in a fiercely competitive environment. In terms of the industrial sector as an investment prospect, the report also highlights the resilience of the industrial investment market in comparison to other sectors, with total return on investment at 3.82%, compared to a 2.18% all property average. The combination of strong industrial sector investment demand, not least from institutional investors, and the gradual improvement in debt lending conditions will combine to trigger a controlled release of secondary industrial assets from banks’ impaired loan books during the second half of 2010.