Industrial Market Review

M1 Corridor industrial and logistics market review

Despite the continued lack of supply across the region, the M1 Corridor (junctions 6 -16) has seen a strong start to the year with positive levels of take-up and increased design and build activity as occupiers look for alternative solutions. 

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In this issue:

Luton & Dunstable sees strongest start for five years

  • Luton & Dunstable has had the strongest start to the year for five years, with H1 take-up totalling 300,000 sq ft (15 transactions).
  • Although the market remains saturated with secondary stock, only four of the15 lettings were unrefurbished buildings.
  • Four deals were with occupiers based outside of the local area, suggesting increased inward investment, and that occupiers are willing to widen their search area in response to limited stock (Apogee, SEW, Fourth Generation and Elite Housewares).
  • Rents remain static, although terms are beginning to harden. Since the start of the year, incentives have reduced and lease commitments are increasing; 6-9 month incentives are now more common for a five year term, down from the 9-12 months that we saw during much of 2012.

Robust H1 for Milton Keynes

  • Activity in Milton Keynes has already exceeded 1.3 million sq ft, assisted by the pre-let of 669,000 sq ft at Magna Park to John Lewis. Activity within the 15,000 – 35,000 sq ft size has been particularly robust.
  • The last 18 months has seen up to15% rental growth in headline rents for good quality units in prime locations.
  • Freehold sales in H1 accounted for approximately 40% of all transactions compared to just 10% in the same period last year. 
  • Freehold prices have been inconsistent, with 60,000 sq ft of good quality stock being sold for less than £50.00 per sq ft
  • Refurbished units have let or sold on average 7.5 months quicker than unrefurbished space.
  • Lease terms have remained relatively constant, with most smaller occupiers still seeking flexible three or five year options. In contrast, larger occupiers have been committing to straight 10 year terms – mainly due to limited supply.

Northamptonshire hits the ground running

  • Static low levels of supply of quality space in the >100,000 sq ft sector is leading to an increase in build to suit activity across the county.
  • Agreed pre-lets in the distribution sector total 353,000 sq ft so far this year with a further 660,000 sq ft known to be in negotiation.
  • A significant increase in demand for smaller unit sizes indicates a return in confidence from smaller businesses.
  • Rents and capital values are under pressure as quality product evaporates.
  • The Waterside Enterprise Zone is proving attractive to small businesses taking advantage of business rates savings. An unintended effect has also been a rise in rental values within the zone.
  • At the half way point, industrial take-up across the county is at 2.2 million sq ft against last year's 12 month total of 3.3 million sq ft. 

Limited take-up for Hemel Hempstead

  • Hemel Hempstead has witnessed limited take-up this year (107,501 sq ft to date) due to reduced enquiry levels and a shortage of good quality units in specific size brackets i.e. 10-20,000 sq ft and 40-60,000 sq ft.
  • This is below the total take-up figure for 2012 (151,000 sq ft) and substantially under the 802,738 sq ft transacted in 2011. It is worth noting however, that the 2011 figures were boosted by several transactions in the 100,000 sq ft size band.

Prime headline rents per sq ft

Market Under 20,000 sq ft 20,000-50,000 sq ft 50,000 sq ft +
Hemel Hempstead £7.75  £7.00 £7.00
Luton & Dunstable £7.00 £6.00 £6.00
Milton Keynes  £6.50 £6.25 £6.00
Northampton £5.50    £5.25 £5.75

View significant H1 occupational transactions.

Occupiers forced to look further afield

  • Supply in Luton & Dunstable has fallen from 1.3 million sq ft to just over 1.25 million sq ft during the first six months of the year, representing a new 10 year low. 
  • Enquiry levels remain inconsistent and gaps continue to appear in supply, particularly for units of c15,000 sq ft. The largest building currently available is 12 Woodside (96,000 sq ft).  
  • Overall supply in Milton Keynes has reduced by approximately 30% compared to 12 months ago. The largest building currently available is DC1, Mount Farm  - a lightly refurbished unit of 209,000 sq ft.
  • With the continued decline in supply, occupiers are widening their search areas outside of the region. 
  • Evidence of gazumping has returned in Milton Keynes on prime and freehold buildings as options continue to dwindle.
  • The majority of remaining space is secondary, with very limited availability in the 20,000 to 100,000 sq ft bracket. This is even more acute within the modern grade A bracket.
  • There has been an increase in demand for freehold opportunities across the region.
  • There are currently just five units available in the region of 100,000 sq ft along the M1 Corridor from the M25 to Milton Keynes; three in Hemel Hempstead and two in Milton Keynes. 
  • There is no supply in the region of 100,000 sq ft in Luton & Dunstable, although Prologis are rumoured to be starting speculative development of 310,000 sq ft at Prologis Park, Dunstable shortly.
  • Northamptonshire’s static supply of secondary stock in the >100,000 – 200,000 sq ft sector is indicative of occupier demand for the highest quality accommodation and a change in the format of building required in this sector.
  • The majority of requirements are for between 50,000 – 200,000 sq ft, and principally in the internet retail fulfilment portion of the market which will continue its high levels of activity.
  • Secondary stock levels below 20,000 sq ft remain stubbornly high as tenants upsize or consolidate their operations.

What does the remainder of 2013 have in store?

  • There are currently 10 transactions (totalling 125,000 sq ft) under offer in Luton & Dunstable. These deals completing will put 2013 take-up on par with the 425,000 sq ft total completed in 2012.
  • Across the region, pockets of demand will go unsatisfied as supply continues to erode.
  • Lack of supply is expected to further fuel design and build activity as evidenced by recent transactions with John Lewis (669,000 sq ft) and AG Barr (265,000 sq ft) at Magna Park, MK and Dachser (225,000 sq ft) at Brackmills, Northampton.
  • Despite the lack of existing supply, with 700,000 sq ft currently under offer in Milton Keynes, total take-up for 2013 is expected to far surpass that of 2012.
  • Prime rents will continue to harden and more institutionally acceptable lease terms are anticipated across the regional market.
  • Large warehouse demand will continue to quickly diminish available land supply in Northamptonshire continuing the pressure on supply and rents.

View key development sites for the M1 Corridor.

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