DTZ

01 February, 2012

• UK industrial take-up increased to 7.45m sq ft in Q4 2011
• Annual take-up for 2011 reached 28m sq ft, down 3.6m sq ft from 2010
• Investment activity increased to nearly £1.4bn in Q4 2011 and £3.4bn for the year
• Availability of grade A stock remains scarce in a number of UK regions.

London, UK: DTZ, part of UGL Services, a division of UGL Limited (ASX: UGL), has revealed the findings of its Property Times UK Industrial Q4 2011 report which covers the market for properties over 50,000 sq ft. According to the report, take-up of industrial stock reached 7.45m sq ft in Q4 2011, the highest quarterly total for over a year. Despite this, annual take-up for 2011 totalled 28m sq ft, down from the 31.6m sq ft recorded in 2010.

Investment activity in the industrial sector rose in the final quarter of 2011 to nearly £1.4bn which is the highest level since Q4 2006 and over 65% higher than the long-term average.

The availability of stock continued to fall for the fifth successive quarter with most UK regions reporting a severe shortage of prime space, although this has been limited by a large number of secondary units coming on to the market.

Simon Lloyd, Head of Industrial & Logistics at DTZ, commented: “In the last 12 months, we have seen the profile of occupiers shift, with manufacturing now accounting for 33% of all transactions which is up 13% from the previous year. This shift is further emphasised by a reduction in deal size as manufacturers typically occupy smaller units than retail and supply chain providers".

He continued: “Looking ahead, we anticipate that pre-lets, land sales and build-to-suit deals will be the overriding trend influencing 2012 take-up as speculative development remains unlikely given the current economic climate. The lack of available grade A space has impacted on the take-up figures, as there have been fewer opportunities available to occupiers.”

The report also revealed that rental levels remained flat in Q4, although agents expect incentives to harden on prime stock.

Martin Davis, Head of UK Research, said: “Providing there are no further shocks to the economic recovery, we anticipate that the developing shortage of industrial space will increase the likelihood of rental growth in the near future.”

In the North West continued occupational demand saw 2011 take-up reach 5.35m sq ft, slightly below the long-term average. Q4 take-up fell to 1.4m sq ft, which was boosted by the recent build-to-suit deal by Asda to facilitate a 620,000 sq ft chilled warehouse facility in Rochdale.

Take-up in Q4 in London, South East & East fell to 750,000 sq ft, taking the annual total to 3.4m sq ft which is below the long-term average. Take-up was boosted by the 340,000 sq ft grade B letting at Tekhnicon House in Braintree. There is less than six months supply of prime stock at current take-up levels and build-to-suit will be the prevalent way of securing space in 2012.

Letting activity in the West Midlands bounced back to 1.2m sq ft after a disappointing Q3, taking 2011 take-up to 4.7m sq ft, the highest level since 2008. This was boosted by several large automotive-related manufacturing deals including Plastic Omnium taking 120,000 sq ft in Coleshill after securing a contract with Jaguar Land Rover.

In Scotland activity bounced back to over 900,000 sq ft in Q4, taking the 2011 total to 2.8m sq ft which is 24% above the long-term yearly average. Key deals included Bericote committing to 500,000 sq ft for a distribution centre for Asda in Grangemouth. The outlook for 2012 is strong with several active requirements from Brakes and Morrison’s both of which are in the market for properties over 100,000 sq ft.

Q4 take-up reached 750,000 sq ft in the North East, with the yearly total of 1.7m sq ft over 50% higher than the long-term yearly average. DTS Clipper committed to 346,000 sq ft of new space in Billingham for an Asda distribution hub. The availability of prime space continues to be an issue, with only five new buildings over 50,000 sq ft in the region.

Take-up in the East Midlands increased to 1.4m sq ft, almost double Q3 levels whilst annual take-up totaled just 3.8m sq ft. Deals were largely expansionary and retail driven, which was exemplified by the 300,000 sq ft letting at Swan Valley by Pets at Home, the largest deal of the quarter. During the quarter 800,000 sq ft of grade B space came onto the market although the availability of prime stock remains scarce.

Q4 take-up fell to 410,000 sq ft in the South West and was dominated by grade B deals. Retailer Morrison’s returned over 600,000 sq ft of grade A and B space to the market in Swindon and Bristol after consolidating into a new facility in Bridgewater. The outlook for 2012 is promising with a number of active requirements for space over 400,000 sq ft.

In Yorkshire & Humberside, Q4 take-up increased slightly to 460,000 sq ft, capping off a disappointing year. The 1.6m sq ft let in 2011 was well below the long-term average of 3.5m. The largest deal of the quarter was 160,000 sq ft taken by DHL in Doncaster. Up to 1.5m sq ft is expected to be returned to the market over the next two years.

In Wales, there was only one reported letting of 70,000 sq ft in Q4, although a large number of deals below 50,000 sq ft were transacted. Demand for space in Q1 2012 looks promising, including Speedyhire, which has a 100,000 sq ft requirement for grade A space along the M4. However, prime space is scarce with little development scheduled.