The lack of grade A space in the industrial and distribution market has become so acute across the UK that rents for prime space have risen.

This is according to our latest research, National Industrial and Distribution Market 2012. Across the UK prime rents increased in 27% locations, with a further 39% of the locations seeing prime rents stabilise. The report analysed activity across 59 locations in 11 regional UK centres during 2011.

Market imbalance will favour landlords

Our findings show that prime rental values are on the increase in strategic locations where there is little or no grade A space available. This market imbalance will cause the market to tip in favour of landlords who own quality space, allowing them to harden their stance on rent and incentives.

Grade A availability lowest for five years

In most size bands grade A availability represents 12 months of supply, with the most acute shortage in the distribution warehouse sector, where supply is down to six months based on 2011 take-up levels.

Pre-lets and build to suit to continue in 2012

Steve Williams, Director of Industrial and Logistics, said: “During 2011 pre-lets and build to suits accounted for 60% of market take-up as occupiers turned to developing their own space or forging partnerships with developers to gain the space they need. There were relatively few other options available to occupiers as little or no speculative development occurred in 2011.”

Retailers and logistics companies dominate distribution sector

Retailers, internet retailers and third party logistics companies dominate the distribution sector, accounting for 55% of activity. However, an increase in activity in the manufacturing sector was also evident with the sector accounting for 20% of all take-up.

Commenting, Michael Alderton, Director of Industrial and Logistics, added: “It was food retailers who dominated the sector – acquiring 8.3m sq ft – which is 45% of take-up across the year, while internet retailers accounted for 10% of activity."

Big shed speculative development to return at the end of 2012

As the economy recovers from a difficult end to 2011 and start to 2012, we expect demand levels to improve in all sectors and sizes, as this happens the pipeline of supply will only increase and consequently we anticipate the return of big shed speculative development at the end of 2012.