The UK industrial sector set a record investment volume of £10.7bn in 2017, accounting for 17% for all property transactions, according to GVA.
Occupier demand for industrial assets was far more diverse than in 2016, when leasing deals by internet retailers led to a record 27.5m sq ft of take-up in 2016, GVA said.
In GVA’s latest Industrial Intelligence report, take-up of modern and new units sized more than 100,000 sq ft totalled 20.6m sq ft.
This was less than last year’s record level, but close to the 10-year average of 21.1m sq ft. Primary demand came from non-internet retail operators, which accounted for 28% of take-up and included significant lettings to Lidl at Gateway Peterborough and H&M at Magna Park, Milton Keynes.
Weaker pound
The manufacturing sector also took advantage of the weaker pound’s boost of export markets, and accounted for 25% of take-up. Third-party logistics take-up was powered by Eddie Stobart agreeing 1.7m sq ft in five deals, mainly close to the golden triangle, to account for 24% of take-up.
The most significant factor for big sheds will be issues around supply, the report said. Available stock stands at 24.3m sq ft, representing around 14 months’ supply.
However, structural changes in the retail sector will support demand, particularly in urban logistics where space requirements are expected to increase in step with the 10% annual increase in online retail sales. This will mean further stress on the availability of industrial land, which is competing with higher-value uses, and will maintain pressure on land values in prime areas.
David Willmer from GVA’s industrial team said: “While there is still a significant appetite for speculative development, there has been a slight reduction in new starts owing to a combination of fewer opportunities as land availability tightens and some funds ensure take-up of existing schemes before starting further development.
Constrained supply
“Therefore supply is likely to remain constrained, although new entrants in the market have announced ambitious plans and are bidding competitively for sites. Realistically, it is likely that much of the new supply over the next few months will instead come from mid-size speculative development in the 30,000 to 80,000 sq ft space.”
Nick Roberts from GVA’s industrial team added: “Industrial property continues to provide an attractive income return in a low-growth, low interest-rate environment, meaning its popularity with investors has only grown over the past year.
“However, the low vacancy rates that make such a strong investment case continue to pose a problem to occupiers as demand in most regions outstrips supply.”
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