Bilfinger GVA’s latest Industrial Intelligence report shows that the availability of big sheds has increased for the first time in a number of years as speculative development responds to the supply shortage.
In the North West, 3.1 million sq ft of speculative construction is currently under construction or completed. Key schemes include Airport City, which is now let to Amazon, and Omega, near Warrington.
Nationally, in 2015 demand from retailers accounted for just under half of the big shed take-up, with non-food and discount retailing the most active. John Lewis, TK Maxx, Staples and Next all completed deals over 500,000 sq ft. Online retailing also remains a key driver, with over 1.5 million sq ft of big shed space being let to Amazon.
The report also shows that strong occupier demand continues across the country, with take-up of modern distribution units over 100,000 sq ft amounting to 21.8 million sq ft during 2015, 5% above the five year average. This is echoed in the North West, where take-up amounted to 3.3 million sq ft during 2015, 30% above the five year average.
Logistics providers accounted for 28% of take-up across the country, with Kuehne and Nagel, Great Bear Distribution and Clipper Logistics taking the largest amounts of space in this sector. On the manufacturing side, automotive companies took the major share of take-up, with JLR and its supply chain being particularly acquisitive and Vantec taking over 400,000 sq ft next to Nissan in the North East. In the North West, Plastic Omnium has acquired a 240,000 sq ft unit at Omega, Warrington.
As in the previous quarter, industrial land values continue to show strong growth. Values across the South East saw the greatest uplift, by an average of 65%, followed by the Midlands at 30%.
Across the ‘northern powerhouse’ cities of Manchester, Leeds, Manchester and Sheffield, values have increased between 10% and 20%. In Manchester, industrial land values are £325,000 per acre with prime rent at £6.50 per sq ft for a 50,000 sq ft unit.
Andrew Pexton, Bilfinger GVA’s Director of Industrial and Distribution in Manchester, said: “The increase in land values has been fuelled by the lack of standing grade-A stock available to both occupiers and investors, particularly in locations where prime development sites are in short supply.
“The distribution market is still looking an attractive opportunity, and although the yield gap between London and the regions has narrowed over the last 12 months, it remains historically wide.”
He added: “The distribution sector in the North West remains buoyant with a number of significant developments under construction.
“There are currently 13 speculative units of over 100,000 sq ft totaling three million sq ft that have been completed or are under construction. Three of the units comprising 555,000 sq ft, 18% of the stock, have already been let. The demand has been internet led with Amazon taking all three units. This shows the continuing focus of the distribution market being driven by the internet.
“Due to the limited availability of quality distribution site and the appetite from developers/institutional investors this has led to an increase in land values. This has meant that the typical rent for a unit more than 100,000 sq ft is now over £6 per sq ft.
“The North West remains an attractive location for investors due to its strong regional infrastructure, demographics and employment base.”
Competition for industrial investment opportunities remains strong, with UK institutional investors accounting for around 37% of the value traded in 2015, while overseas buyers made up 18%. Whereas in the North West, investment volumes accounted for 13%.