Industrial Market Review

East Midlands industrial & logistics market review

With speculative development yet to kick-start, and virtually all of the big sheds in the East Midlands now either occupied or under offer, we are seeing an increase in enquiries for build to suit solutions. Due to the limited supply of units providing 100,000 sq ft and above, developers continue to aggressively promote their sites with the promise of a speedy delivery.  

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In this issue:

Build to suit opportunities fuel industrial take-up

  • Goodman has secured a signature deal at Derby Commercial Park, letting in excess of 627,000 sq ft to Kuehne & Nagel Drinkflow Logistics Ltd (K&N). The unit was completed for occupation in spring this year.
  • The region’s key sites are all promoting build to suit accommodation with a 35-40 week turnaround. These include East Midlands Development Council (EMDC), Derby Commercial Park, Optimus Point, Summit Business Park, Castlewood and Markham Vale; all of which provide easy access to the M1.

Power balance shifts to landlords

  • The past year has seen rents across most size, sectors, and locations stabilise, although significant rental growth remains to be seen.
  • Higher rents are inevitably being achieved on better quality buildings; with proximity to the motorway network, good eaves height, large yard areas and loading facilities key influencers.
  • The biggest change this year has been the extent to which incentives have hardened in favour of landlords. Investment in fit-outs is perhaps disguising the overall incentive package, but the outright rent-free periods have reduced: up to six months’ rent free on a 10 year term is not an unusual outcome.

Significant occupational transactions H1 2014

Property Size (sq ft) Landlord(s) Tenant Lease info
Derby Commercial Park 627,000 Goodman  Kuehne & Nagel £4.95 per sq ft 
Eurocell 267,000 Legal & General Eurocell £4.00 per sq ft
Langley 255 255,000  Standard Life DHL Confidential
6A2, EMDC, J24a M1 50,650 Clowes Birlea £5.25 per sq ft

Distinct lack of grade A supply

  • Throughout the region there remains an acute shortage of grade A supply across all size sectors.
  • There are few quality industrial buildings above 50,000 sq ft. Those that have previously been on the market for extended periods of time such as Langley 255 are now occupied.
  • The majority of activity remains focused on multi-let estates up to 10,000 sq ft but despite reasonable availability, the quality is questionable. The 25,000 sq ft – 50,000 sq ft bracket has also seen an increase in demand across the region.

Fast track planning will aid deliverability

  • With market dynamics not quite ready to encourage speculative development, developers have gathered support from local authorities to fast-track planning and ensure their sites can remain a speedy solution; a particularly important factor for large occupiers with requirements.
  • Local authorities are also offering financial support to developers to assist in securing occupiers where possible. Grants via the Regional Growth Fund have been available, and it is anticipated that this will continue, with a particular focus on SME’s.

What does the future have in store?

  • With the exception of a 165,000 sq ft speculative building known as Hinckley 165 on Hinckley Commercial Park (due for completion November 2014), there is no immediate promise of a return to speculative development  although we do expect to see some, but generally on a smaller scale.
  • The majority of activity will remain in the modern second-hand sector; however, the quality of accommodation is likely to fall below occupier expectation, and we therefore expect occupiers to seek greater flexibility in terms.
  • The scarcity of good quality buildings is fuelling the build to suit market with the number of enquiries significantly increasing.
  • We expect an increase in rents, but it is unlikely we will see any further reductions to the low incentives we are currently witnessing.
  • Capital values on existing stock will decline once speculative development begins, and we anticipate that any such development will command a bold price.

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