Southampton

Research - 02/07/2018

South Coast Industrial Market Pulse Q2 2018

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The long awaited influx of prime stock is continuing to fill the market. This is providing occupiers with the grade A stock they have been craving for, and with finally being able to see the finished product, occupiers are committing to these schemes as they approach completion. Whilst the quarter appears quieter on the face of it, we are aware of a number of large transactions currently under offer, which should result in a strong final two quarters. Enquiries remain in line with the three year average and capital values continue to rise with a shortage of freehold opportunities along the South Coast.  

Enquiries remain consistent

Enquiries remain relatively consistent with the 3 year average which is comparable to the same period last year however year on year it is a 5% decrease.
 
The main focus of enquiries is still for logistics warehouse sector, along with an increase in enquiries from the manufacturing sector. We continue to see increased enquiries for larger stock however there is particular focus for space of sub 20,000 sq ft representing 78% of all enquiries received.
 
It will be interesting to closely monitor the ongoing Brexit negotiations and its correlation on enquiry levels, supply and demand for the remainder of this year.

Q2 has witnessed a decline in take up

Take up in Q2 has witnessed a decline however, this can largely be attributed to a high number of large transactions that are currently under offer (totalling approximately 550,000 sq ft). We anticipate a significant number completing in the coming quarters, readdressing the drop in figures in Q2. Again take up this quarter has primarily been for secondary stock as occupiers take refurbished space and remain cost conscious, in addition to satisfying contract led, tight timescales, for occupation.

The vital statistics have been summarised below:

   Q2 2018 (sq ft) Q1 2018 (sq ft)  % change   % change Year on Year
Total take up   230,730  450,627  -48.8%  -45%
Prime take up  7,853  79,406  -90.1%  -49.2%
Secondary take up  222,877  371,221  -40%  -29.4%

 

South Coast Industrial Market Pulse Q2 2018 take up


Significant occupational transactions

Property Size  Landlord  Tenant  Terms  Rent/Price (per sq ft) 
Unit H2 Hazleton Interchange, Waterlooville  25,812 sq ft  IPIF  Formaplex  10 year lease  £8.50
Unit 2 iO Centre, Segensworth  16,714 sq ft  Forelle Estate Limited  Anglian Windows Limited  10 year lease  £8.00
Unit 2 Alpha Park, Chandlers Ford  44,868 sq ft  Blackrock  Charles Kendall Freight  10 year lease  £10.00
Unit 3 A Dunsbury Park Havant

 11,300 sq ft

 1.3 acres

 Portsmouth City Council  VW Breeze  20 year lease  £9.25 + overage
Unit 1 Davis Way, Fareham  9,715 sq ft  Hargreaves (Trading Property) Ltd  Funeral Services Limited 20 year lease  £8.00
Unit 4 (Business Hanger) Solent Airport, Daedalus  6,394 sq ft Fareham Borough Council   Phoenix Helicopter Academy  6 year lease  £7.75

Secondary stock at lowest levels since 2015

Grade A stock continues to rise out of the ground and near completion, rejuvenating the industrial stock on the South Coast, as it continues to be a key location for national and international occupiers as well as home to local occupiers. Notable newly available developments in the region include Units 5 and 6 Mountpark, Southampton totalling 167,150 sq ft and Units 1 – 3 Velocity, Havant together some 101,726 sq ft, and Merlin Park, Portsmouth of 7 units totalling 91,000 sq ft complementing the completed schemes Alpha Park, Chandlers Ford and South Central Nursling.

The majority of the schemes have been brought forward to satisfy the mid box / big box requirements, however there is now a real shortage of prime stock for smaller units presenting a gap in the market for developers to satisfy. One success story of this is take up at Glenmore Business Park, Chichester where Glenmore has built 75 small business units.

Availability of secondary stock continues to decline dropping to its lowest level since Q3 2015, although overall availability is on the rise.

The vital statistics have been summarised below:

  Q2 2018 (sq ft)  Q1 2018 (sq ft)  % change  % change Year on Year 
 Total stock  2,616,679  2,433,300  7.5%  17.2
 Prime stock  1,138,217  907,227  25.5%  82.3
 Secondary stock  1,478,462  1,526,073  -3.1%  -8.1

 

South Coast Industrial Market Pulse Q2 2018 availability


Double Digits Reached

The letting at Alpha Park has finally pushed industrial rents on new build 30,000 sq ft plus into double digits on the South Coast and whilst secondary rents have also risen, we anticipate incentives offered on this secondary space may start to soften as prime stock continues to fill the market. We anticipate landlords may be inclined to refurbish the poorer grade stock to compete with the new grade A space.
 
Freehold opportunities on the South Coast are in short supply and often result in best bids due to the high demand, as a result we have witnessed a rise in capital values for example business units at Fulcrum, Whiteley totalling 5,166 sq ft sold for £140 per sq ft and Segensworth Business Centre totalling 2,960 sq ft sold for £130 per sq ft. 

 

 Under 5,000 sq ft Prime capital value per sq ft  Prime headline rent per sq ft  Secondary capital value per sq ft  Secondary headline rent per sq ft 
 Portsmouth and Havant  £135 - £145  £10.00 £90 - £100  £8.50 
 Southampton and Eastleigh £150 - £160  £12.00 £90 - £100 £10.00
 Bournemouth and Poole £140 - £150  £9.50 £95 - £105 £8.50

 

5,000 - 20,000 sq ft Prime capital value per sq ft Prime headline rent per sq ft Secondary capital value per sq ft Secondary headline rent per sq ft
Portsmouth and Havant £125 - £135 £9.50 £70 - £80 £8
Southampton and Eastleigh £130 - £140 £9.50 £80 - £95 £9.00
Bournemouth and Poole £115 - £120 £8.50 £85 - £95 £7.50

 

Over 20,000 sq ft

Prime capital value per sq ft Prime headline rent per sq ft Secondary capital value per sq ft Secondary headline rent per sq ft
Portsmouth and Havant £110 - £130 £9 £70 - £80 £7.75
Southampton and Eastleigh £115 - £140 £10.00 £70 - £85 £8.75
Bournemouth and Poole £110 - £120 £8.25 £65 - £75 £7.25

Investment Market Review

Despite a subdued first quarter, Q2 saw transactional volume for ‘South Coast industrial’ hit circa. £100m. The headline transactions included LaSalle (Greater Manchester Pension Fund) acquiring South Central, Nursling (part of the Sovereign Portfolio) and M&G Real Estate purchasing Mountpark Southampton (again, this being part of a larger Portfolio sale).

 Other activity of note was Columbia Threadneedle’s purchase of CCF in Hedge End for £4,050,000 (5.74% NIY) a level notably ahead of the £3,450,000 (6.75% NIY) quoting.

 ‘New to market’ included Units 10-15 Petersfield Business Park; a freehold multi-let trade counter estate with an AWULT of 8.5 years. The average rent reflected £7.62 psf. At a quoting level of £3,100,000 (6.17% NIY) we would be very surprised to not see this number comfortably surpassed. Finally, Cording commenced marketing of Lineside Industrial Estate, a freehold 28 unit scheme with an AWULT of 5.2 years. The rent reflected a low average of £5.43 psf with a quoting price standing at £19,170,000 (5.50% NIY).

Our message along the South Coast remains consistent; with opportunities in this geographic region being far and few between and investors attracted to the strong market dynamics, the outlook remains positive. Average yields for the wider South East have been driven down to 4.30% on the back of strong rental growth expectations. Prime Yields for South Coast Industrial stands at 4.50%.

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