Industrial spec development hits 10-year high

By Paul Norman - Monday, July 09, 2018 14:20

Take-up of industrial and logistics space (100,000 sq ft plus units) hit 16.4m sq ft (1.542m sq m) in the first half of 2018, a 25% increase on last year’s figure and 33% above the long term average, reports Savills, which added that speculative development is at a 10 year high.

Demand has once again been driven by online retail activity which accounted for 28% of all transactions

Savills said there had been a slight drop in supply, falling from 28.4 at the start of the year to 27.8m sq ft in H1 2018. However, Savills said it is tracking over 9.4m sq ft (845,417 sq m) of speculative development across 49 units due to be delivered in 2018/19 - the highest level for more than 10 years as developers continue to capitalise on the popularity of the sector.

Across the UK, the East Midlands has had a record half year with take-up of more than 4m sq ft (371,612 sq m), nearly double that of H1 2017.

Savills writes that key transactions in the region have taken place at East Midlands Gateway where four build-to-suit deals have been agreed, totalling nearly 2m sq ft (185,806 sq m).

It adds: "Elsewhere, in both the South East and Yorkshire, more space has been transacted in the first half of the year than in the whole of 2017 with large land sales in Bedford to B&M and Aldi, as well as Clipper Logistics taking 615,000 sq ft (57,135 sq m) in Sheffield, the largest deal for a second hand unit this year."

Kevin Mofid, head of industrial research at Savills, said: “As we head in to the second half of the year the current pace of take-up is on par with 2016 levels, the best year on record for industrial take-up. With this in mind, there are still a number of large unfulfilled requirements in the market, which stands us in good stead for another stellar year.”

Savills notes that in 2018 to date 55% of all occupier demand has been related to the retail sector, up from just 25% in 2017, which "demonstrates that many retailers are continuing to reorganise and restructure their supply chains as they grapple with structural changes to shopping habits of the UK consumer".

Savills adds: "Similarly, the manufacturing sector continues be active accounting for 15% of all space transacted in 2018. Depending on the outcomes of Brexit talks with the EU on future trade agreements, there is the possibility that manufacturers will aim to keep more inventory in the UK, which could translate into more demand for warehouse space."

Richard Sullivan, national head of industrial & logistics at Savills, added: “What’s clear is that the retail sector will continue to influence the future of our market. Online retailers have a large part to play, but across the spectrum businesses will wake up to the importance of having a strong supply chain. What’s more, as we head closer to Brexit it will be interesting to see how this might impact the sector, in particular when it comes to demand across the UK.”

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