Over the past 18 months the industrial sector has posted strong returns on investment and transactional activity as retail occupiers continue their search for larger sheds to base their logistics activities from, despite the fallout from the EU referendum experienced by the rest of commercial real estate, according to EG data.
Over the past two years, investment into UK industrial real estate has fallen from £4.3bn to £2.9bn in the period to the end of June – a 17% drop year-on-year.
However, the number of deals done has risen from 587 to 600 year-on-year. This means that less money is being spent on big-ticket purchases, but more capital is being spread across an increasing number of assets.
Take-up up reached 94m sq ft in the year ending June 30, a slight dip from the previous 12 months, when take up was 96m sq ft.
A pattern starts to emerge when breaking down occupation activity by size of sheds.
Small and classic-sized sheds both saw a 4% decrease in their share of take up on the previous 12 months, while large and mega sheds, reported increases of 4% and 5% respectively.
Regionally, the South East and West Midlands commanded the largest amount of occupational activity over the 12-month period.
The South East, buoyed by its proximity to London and transport links, recorded take-up of 19.1m sq ft and the West Midlands, the traditional heartland for big box distributors, recorded take up of 17.5m sq ft.
Retail occupiers accounted for 46% of all space let over the past year, maintaining the sector’s status as being the biggest driver of the industrial market as a whole.
That figure rose from an average of 38% over a five-year period.
This change in demand for different sizes has had an effect on rental values, with large sheds seeing rents increase by 29% over the past five years, followed by classic-sized sheds up by 20%, and mega sheds up by 17%.
Supply is running out. Regionally, there is just under 2.5 years of standing stock left on the market. The West Midlands is the most constrained, with just 1.36 years of stock left, followed by South East on 1.86 years and East Midlands on 2.15 years.
However, planners appear to be responding to the supply crisis with applications for new industrial space up by 10% year-on-year from 71.3m sq ft to 78.3m sq ft.
Some 83% of that space is for large and mega sheds combined.
Retailers have also emerged on the planning scene taking 8% of all applications for new industrial space – the highest percentage over the past five years.
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