Industrial Market Review

South Coast Industrial Market Pulse Q2 2018

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 3 year average and capital values continue to rise with a shortage of freehold opportunities along the South Coast.

In this issue:

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%

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

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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Southampton, Adrian Whitfield, industrial agency
Adrian Whitfield

023 8071 3073

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Adrian Whitfield
Director - Industrial

023 8071 3073

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