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  • 1. Industrial & Distribution Floorspace Today September 2010
  • 2. IDFT I N D U STRIAL & DISTRIBUTION FLOO R S PA C E T O D AY Executive summary “Welcome to the • Available industrial floorspace in Great Britain turned downwards for the first September 2010 edition of time in five years during the opening half of 2010. Tentative improvements in Industrial and Distribution occupier demand coupled with slowing rates of release of secondhand stock, resulted in a decline in total floorspace available. Floorspace Today • At the end of June 2010, availability totalled 23.791 million m² representing This publication reports on the latest a decrease of 0.6% since December. Whilst only a small reduction, it signifies a turning point in the current supply cycle and suggests that overall industrial trends in the UK industrial market vacancy is now beginning to stabilise. across Great Britain. Published twice • The Midlands recorded the largest reduction in available floorspace during a year in March and September, the first half of 2010, as a number of big shed distribution transactions created a notable dent in the overhang of supply. it presents our latest survey of • The availability of new floorspace contracted by a further 14.0%, or 439,000m², availability, speculative development in the six months to June 2010. New units now represent 11.3% of the overall and prime rents for every region. Our available stock in Great Britain. industrial floorspace survey has been • Improved demand for the new big shed sector, and a slowdown in the return published since 1975 and provides of secondhand big sheds, caused total availability in large buildings to fall. At the end of June 2010 there was 8.060 million m² available in units of 10,000m² and an invaluable time series of industrial over, representing a decrease of 2.2% since December. market data. • In the big box distribution market, the supply of new units over 10,000m² fell by 288,190m² during the first half of 2010, with availability now 39% lower than Our latest survey shows industrial its peak in March 2008. supply declining for the first time in • During the recent recession, occupier take-up for new units over 10,000m² five years and with the UK economic slumped to a 15-year low in terms of floorspace transacted, but since the weakest period of demand during the first half of 2009, take-up levels have shown steady recovery now gaining momentum, improvement. the market outlook is becoming more • With development finance remaining relatively scarce, speculative starts positive. However, with expectations are still rare, but an increase on the levels recorded in January suggests signs of a subdued and fragile recovery, of a tentative uplift in developer confidence. An increase of 15% compared with January, brings the total under construction at the end of July, to 96,498m² across occupiers and investors are likely 48 schemes. to remain cautious over the next • The UK economic recovery accelerated much faster than expected during the six months and it will take time for second quarter of the year (GDP growth of 1.1%), marking the third quarter of positive growth. Whilst recent indicators have given a welcomed boost to the market confidence to return. economy, expectations remain cautious with the recovery set to be subdued and fragile. If you require further information on • According to the IPD Quarterly Index, average industrial rental values this publication, or have a specific continued to fall in the first half of the year, although the rate of decline eased. query relating to industrial property Rents contracted by 1.1% in the first six months of 2010 and forecasts indicate an overall decline in industrial rental values of 2.1% this year, followed by 0.4% markets, please do not hesitate to in 2011. contact me or one of my colleagues at King Sturge. Regional agency contacts are detailed on the relevant pages and on the inside back cover of the report.” Anna Behan Industrial Research 1
  • 3. King Sturge: Industrial & Distribution Floorspace Today Overview The return of secondhand large buildings to the market has slowed and the improved take-up in the new big shed sector, has Availability caused total availability in large buildings to fall. At the end of June there was 8.060 million m² available in new and secondhand units The total level of available supply turned downwards for the over 10,000m², representing a decrease of 2.2% since December first time in five years during the opening half of 2010, following and the first significant depletion of large stock since the end of a prolonged trend of rising industrial availability in Great Britain, 2005. Whilst the supply of secondhand big sheds has been on an lasting for nine consecutive surveys. Tentative improvements upward trend since mid 2008, the increase in the past six months in occupier demand, coupled with slowing rates of release of was very modest. The big shed distribution section at the back secondhand stock, resulted in a decline in total floorspace available. of the publication, looks more closely at the market for new units over 10,000m². At the end of June 2010, availability totalled 23.791 million m², representing a decrease of 0.6% since December. Whilst only a Speculative development small reduction, it signifies a turning point in the current supply cycle and suggests that overall industrial vacancy is now beginning Following three years of declining levels of development, and to stabilise. an 18-month low of speculative completions, there has been a modest increase in the level of floorspace under construction. Chart 1: Available industrial floorspace With development finance remaining relatively scarce, speculative starts are still rare, but an increase on the levels recorded in January 25 suggests signs of a tentative uplift in developer confidence. England & Wales Scotland 20 With an increase of 15% compared with January, a total of 96,498m² was under construction at the end of July across 48 schemes. million m2 15 Chart 3: Speculative floorspace under construction 10 1,600 140 floorspace m2 No. of schemes 5 1,400 120 Floorspace (thousands m²) 1,200 100 0 1,000 80 00 01 02 03 04 05 06 07 08 09 10 20 20 20 20 20 20 20 20 20 20 20 800 Source: King Sturge Research Excludes units below 500m2. 60 600 Surveys taken in April, August & December. As from 2005, the surveys are taken in June and December. 40 400 200 20 Regionally, the most significant changes in supply were recorded in the Midlands, where availability contracted by 8.6% in the East 0 0 M -01 Se -01 Ja 01 M -02 Se -02 Ja 02 M -03 Se -03 Ja 03 M -04 Se -04 Ja 04 Ju 5 Ja 05 Ju 6 Ja 06 Ju 7 Ja 07 Ju 8 Ja 08 Ju 9 Ja 09 Ju 0 0 and 3.5% in the West. The Midlands witnessed a number of large 0 0 0 0 0 1 l-1 p- p- p- p- n- l- n- l- n- l- n- l- n- l- n- n ay n ay n ay n ay Ja distribution transactions over the first six months of the year, creating a notable dent in the overhang of supply. Source: King Sturge Research The South East and East Anglia also contributed to declining floorspace, with 0.1% and 1.0% less supply available in June The highest levels of development were recorded in the North respectively. The remaining regions recorded only modest West which accounted for 17.5% of the total for GB, followed by increases in availability, with the exception of Wales where supply the South West and the South East contributing 15.6% and 15.4% was 5.4% higher at mid-year. respectively. Chart 4: Speculative floorspace under construction by region at Chart 2: New space as a percentage of total availability July 2010 18% 16% 2.3% North West 2.9% 3.4% South West 14% 3.8% 17.5% South East 12% 3.9% Scotland 10% 8.7% East Midlands 8% 15.6% East Anglia 6% 11.3% Yorkshire & Humberside 4% West Midlands 15.4% North 15.3% 2% Greater London 0% Wales 00 01 02 03 04 05 06 07 08 09 10 20 20 20 20 20 20 20 20 20 20 20 Source: King Sturge Research Source: King Sturge Research The economy The availability of new floorspace peaked at the end of 2008 (at The UK economic recovery accelerated much faster than expected 3.523 million m² or 15.5% of the total supply) and fell by a further during the second quarter of the year, marking the third quarter of 14.0% during the first half of 2010, with development remaining positive growth. Whilst recent indicators have given a welcomed very constrained. As occupiers took advantage of preferential boost to the economy, expectations remain cautious with the terms offered on new stock, supply contracted by 439,000m² in recovery set to be subdued and fragile. the six months to June, to 2.694 million m². This is comparable to levels at mid 2007 and new space now represents only 11.3% of The latest estimate for GDP in Q2 showed surprisingly robust the overall available stock in Great Britain. growth of 1.1%, which was twice as strong as forecast, but 2
  • 4. Table 1: Industrial property market availability (million m²) as at June 2010 Availability (million m²) Availability percentage change as at June 2010 on December 2009 Total New Large Total New Large England & Wales 21.426 2.626 7.294 -0.8 -13.8 -2.7 Scotland 2.365 0.068 0.766 1.8 -22.1 2.6 Great Britain 23.791 2.694 8.060 -0.6 -14.0 -2.2 North 1.438 0.162 0.408 0.7 -17.0 3.2 North West 2.813 0.473 1.178 0.7 -5.2 4.8 Yorkshire & Humberside 2.882 0.631 1.186 0.3 -9.5 3.7 East Midlands 1.838 0.347 0.822 -8.6 -21.9 -20.8 West Midlands 3.602 0.336 1.359 -3.5 -20.0 -7.5 East Anglia 0.520 0.083 0.145 -1.0 -4.5 9.8 South West 1.478 0.121 0.455 0.2 -10.5 4.3 Wales 1.599 0.039 0.598 5.4 -16.4 -5.9 South East 5.256 0.434 1.145 0.2 -16.7 1.8 - Greater London 1.839 0.154 0.280 0.7 -14.5 3.5 - Rest of South East 3.417 0.280 0.865 -0.1 -17.9 1.3 Premises below 500 m² excluded with a surge in the notoriously volatile construction sector largely the fragile state of the UK banking sector, but many commentators responsible for the buoyancy. As a result, many anticipate that this expect hikes to begin in earnest early next year. figure could be revised downwards in subsequent releases and that growth at this rate is unlikely to be sustained over the coming As a result of the radical spending cuts and fiscal policies, GDP quarters. forecasts have been revised downwards, with growth of 1.1% expected this year, followed by a revised 2.1% in 2011. However, The strength of GDP was still a surprise in a quarter dominated with the strong rebound in GDP during Q2, these forecasts may by the General Election. The emergence of a Liberal-Conservative be revised upwards in coming months. Coalition after an inconclusive May poll, eased fears about policy drift and uncertainty. However it also brought with it an As the economic recovery gets underway, albeit at modest pace, aggressive programme of spending cuts and tax increases in a the outlook for the industrial sector is more positive. The market June Emergency Budget that was tougher than many expected. remains difficult and occupiers are cautious, but demand is expected The new Chancellor introduced an additional £40 billion of fiscal to gradually improve as the economy gathers momentum. With tightening, with aims to bring the current budget back to balance national supply now stabilising and speculative development very by 2014/15. This was generally welcomed by markets, though constrained in the foreseeable future, the availability of new and there remain concerns that the spending cuts are so severe that good quality stock is rapidly diminishing. The return of secondhand they may hit the economic recovery, acting as too severe a drag stock has also now slowed, so in some regions the market is on growth over the next 12 months. becoming increasingly favourable to landlords and developers. The UK Purchasing Managers Index (PMI), a lead indicator of Prime headline rents have generally remained stable across the economic activity, highlights that the strong rebound in economic country, but have been largely propped up by generous incentive output may subsequently soften. Figures for the service, packages on offer. In areas with supply side constraints, these manufacturing and construction sectors all weakened, with many incentives are now tightening and if occupier demand continues businesses citing the looming public sector cuts as likely to hinder to improve, some upward movement in rents could be seen in future orders. However, the manufacturing sector is holding up selective locations towards the year-end. best, with increases in new orders resulting in a still healthy, expanding, PMI reading. According to the IPD Quarterly Index, average industrial rental values continued to fall in the first half of the year, although the Business failures have continued to slow, since the most dramatic rate of decline has eased, and 2009 is likely to mark the bottom of fallout recorded at the beginning of 2009. The number of company the rents cycle. Rents contracted by 1.1% in the first six months insolvencies as reported by the Insolvency Service, showed 20% of 2010 and our central forecast indicates an overall decline in fewer compulsory liquidations within England & Wales during the industrial rental values of 2.1% this year, followed by 0.4% in second quarter compared with the same time last year. 2011. Positive rental growth is not expected to return until 2012, albeit at a modest rate of 0.5%. Labour market figures are also encouraging. In the three months Chart 5: GDP Growth, 1990 - Q2 2010 to June, unemployment edged down to 7.8% of the workforce 6 6 with 49,000 fewer people looking for work than in the previous 5 5 three months. This continues the downward drift in jobless figures 4 4 since the start of 2010. 3 3 2 2 Outlook 1 1 The Bank of England has held interest rates at the historic 0 0 -1 -1 low of 0.5% since March last year, but as recovery proceeds, -2 -2 attention will increasingly turn to the outlook for monetary policy. -3 -3 Speculation about the timing of a rise in interest rates is increasing. -4 -4 All measures of inflation have risen since the end of 2009 but this -5 -5 Quarterly growth % Annual growth % largely reflects the effects of last year’s interest rate cuts and VAT -6 -6 rises. These effects should fade, though inflation is expected to -7 -7 remain fairly high over the coming months. Therefore, a move to 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 20 20 20 raise interest rates is not yet justified by economic figures, or by Source: ONS 3
  • 5. King Sturge: Industrial & Distribution Floorspace Today SCOTLAND NORTH YORKS & HUMBERSIDE NORTH WEST EAST MIDLANDS WEST EAST MIDLANDS ANGLIA WALES LONDON SOUTH EAST SOUTH WEST *The King Sturge data in this report are based on the Standard Statistical Regions as shown above. IPD investment performance data quoted in this report are based on Government Office Regions. 4
  • 6. TOTAL GB INDUSTRIAL MARKET Greater London 6 South East 7 East Anglia 8 South West 9 Wales 10 East Midlands 11 West Midlands 12 North West 13 Yorkshire & Humberside 14 North 15 Scotland 16
  • 7. King Sturge: Industrial & Distribution Floorspace Today Greater London Prime industrial rents (£/m²) Location Jan 10 July 10 Change in availability - Over 6 and 12 months Heathrow 140.00 140.00 Within Greater London, total available floorspace increased by Park Royal 121.10 121.10 0.7% (13,185m²) in the six months to the end of June, to reach a Stratford 94.20 94.20 total of 1.839 million m² at the middle of the year. Bromley-by-Bow 94.20 94.20 Croydon 88.80 88.80 The availability of large buildings over 10,000m² increased by 3.5% (9,404m²) in the same period, to 279,801m² at the end of June. Assumes minimum of 1,000m². Large buildings accounted for 15.2% of Greater London’s available stock. Investment market performance The industrial market in Greater London produced a total return Available new floorspace decreased by 14.5% (26,147m²) in of 8.0% over the first half of 2010, according to the IPD Quarterly the first half of 2010 to 153,987m². This is the lowest level of Index and 26.4% in the year to June; the strongest returns new floorspace since December 2006. At the end of June, new recorded across all GB regions. floorspace accounted for 8.4% of Greater London’s available stock. Capital values increased by 4.7% in the first half of the year and Over the 12 months to June 2010, available floorspace in Greater were 18.3% higher over the 12 months to June. London increased by 3.4% (60,843m²). According to the IPD Index, rental values fell by 0.1% over the first The availability of large buildings over 10,000m² decreased by half of 2010; the smallest rental decrease across all GB regions, 1.8% (5,262m²) over the year to June. with a fall of 0.6% recorded over the year to June. Available new floorspace decreased by 24.9% (51,179m²) between We believe that prime yields in Greater London have remained June 2009 and June 2010. stable for multi-let properties over the past six months, whilst distribution yields have softened. At June yields were between 6 Greater London availability - last 10 years and 6¼% for multi-let estates and 6¼ to 6½% for large distribution 2.0 properties. Secondhand floorspace New floorspace 1.8 1.6 Greater London market performance indicators Jun 05 - Jun 10 1.4 260 Total return Index value December 2000 = 100 million m2 1.2 240 Capital growth 1.0 220 Rental value growth 0.8 200 0.6 180 0.4 160 0.2 140 0.0 120 01 02 03 04 05 06 7 8 9 10 0 0 0 20 20 20 20 20 20 20 20 20 20 100 Source: King Sturge Research 80 Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Speculative development 05 05 06 06 07 07 08 08 09 09 10 Source: IPD The level of speculative development under construction within Greater London has been on a steep downward trend since mid 2007, with no schemes under construction speculatively at the Greater London agency comment beginning of the year. At the end of July however, there was an increase in development, with one small scheme of 2,787m² “Enquiry levels are still continuing to increase steadily with under construction, and there are a number of proposals in the clear evidence that with the gradual take-up of the better quality pipeline which are expected to start early next year. buildings two factors are arising. Firstly, whilst tenants are still able to command significant incentive packages in exchange Greater London speculative floorspace under construction for sensible lease terms, in certain areas, where supply is 180 16 becoming limited, landlords are now clearly starting to rein in Floorspace m2 No. of schemes 160 those incentives and this will continue during the remainder 14 of 2010 on a larger scale. Secondly the level of speculative 140 12 development will begin to rise with a number of modest Floorspace (000s m2) 120 10 schemes close to starting, stimulated by increasing occupancy 100 8 levels and continuing demand. The market has some way to 80 go but there are some positive signs of improving occupier 6 60 confidence in the Greater London industrial markets.” 40 4 20 2 Andy Harding, Partner (London) 0 0 020 7087 5310, andy.harding@kingsturge.com Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul 01 01 01 02 02 02 03 03 03 04 04 04 05 05 06 06 07 07 08 08 09 09 10 10 Source: King Sturge Research 6
  • 8. The South East Prime industrial rents (£/m²) Location Jan 10 July 10 Change in availability - Over 6 and 12 months Slough 121.10 121.10 In the South East, outside of London, total available floorspace Basildon 75.35 75.35 decreased for the first time in two years, by 0.1% (3,075m²) over the first half of 2010. At the end of June there was a total of 3.417 West Thurrock 75.35 - 80.70 75.35 - 80.70 million m² available. Dartford 80.70 - 83.40 80.70 - 83.40 High Wycombe 91.50 91.50 Floorspace in large buildings of over 10,000m² increased by 1.3% Assumes minimum of 1,000m². (11,371m²) to 865,128m², representing 25.3% of the region’s total available stock. Investment market performance Available new floorspace decreased by 17.9% (60,960m²) in the The industrial market in the South East produced a total return of six months to the end of June, with new space accounting for 6.8% in the first half of 2010, according to the IPD Quarterly Index, 8.2% of the region’s total available stock. with an annual return of 20.0% for the year to June. Over the year to June 2010, available floorspace in the South Capital values in the first half of the year increased by 2.9% with East increased by 0.5% (16,732m²), which is the smallest annual an annual increase of 11.1% over the 12 months to June. increase across all regions. According to the IPD Index, rental values fell by 1.4% in the first Availability in large buildings over 10,000m² increased by 7.7% six months of the year and were 3.7% lower over the 12 months (61,969m²) over the 12-month period. to June. New floorspace availability decreased by 25.2% (94,670m²) over We believe that prime yields in the South East have remained the 12 months to the end of June 2010. stable for multi-let properties over the past six months, whilst distribution yields have softened. At June yields were between 6 South East availability - last 10 years and 6¼% for multi-let estates and 6¼ to 6½% for large distribution 4.0 properties. Secondhand floorspace New floorspace 3.5 South East market performance indicators Jun 05 - Jun 10 3.0 260 Total return Index value December 2000 = 100 2.5 240 Capital growth million m2 220 2.0 Rental value growth 200 1.5 180 1.0 160 0.5 140 0.0 120 01 02 03 04 05 06 07 08 09 10 20 20 20 20 20 20 20 20 20 20 100 Source: King Sturge Research 80 Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun 05 05 06 06 07 07 08 08 09 09 10 Speculative development Source: IPD The level of industrial floorspace under construction on a speculative basis within the South East has increased by 12% since our previous survey. At the end of July 2010 there was a South East agency comment total of 14,835m² under construction across six schemes, the “Industrial occupier demand within the South East improved largest of which comprises 4,170m² and is due for completion in September. There are a number of schemes where construction further over the first half of 2010, with a steadily increasing has been put on hold, but as new supply becomes increasingly level of enquiries and transactions within both large and smaller limited in the region, construction is expected to recommence on units. New floorspace continues to decline causing a shortage the majority of these schemes towards the end of the year. of good quality product, and occupiers are now experiencing a severe lack of this space particularly in the core industrial areas. South East speculative floorspace under construction With limited new speculative development underway, there is 300 30 now more design and build activity and pre-let development will Floorspace m2 No. of schemes continue to increase.” 250 25 Floorspace (000s m2) 200 20 Tim Johnson, Head of International Industrial Agency 020 7087 5300, tim.johnson@kingsturge.com 150 15 100 10 50 5 0 0 Jan- May Sep Jan May Sep Jan May Sep Jan May Sep Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul 01 01 01 02 02 02 03 03 03 04 04 04 05 05 06 06 07 07 08 08 09 09 10 10 Source: King Sturge Research 7
  • 9. King Sturge: Industrial & Distribution Floorspace Today East Anglia Prime industrial rents (£/m²) Location Jan 10 July 10 Change in availability - Over 6 and 12 months Peterborough 53.82 53.82 Following a significant increase in availability in our last survey, Huntingdon 53.82 53.82 supply in East Anglia decreased by 1.0% (5,308m²) over the first Norwich 51.13 51.13 half of 2010, to reach a total of 519,590m² at the end of June. Ipswich 51.13 51.13 However, availability in large buildings increased by 9.8% Assumes minimum of 1,000m². (12,908m²) over the six months, to 144,643m². At the end of June, large buildings accounted for 27.8% of the region’s available stock. Investment market performance The industrial market in the Eastern region produced a total return Available new floorspace decreased by 4.5% (3,966m²) over of 7.2% in the first half of 2010, according to the IPD Quarterly the same period, to 83,318m², and accounted for 16.0% of East Index and 21.4% in the year to June. Anglia’s total supply at mid year 2010. Capital values in the first half of the year increased by 3.5% with Over the year to June 2010, available floorspace within East Anglia an annual increase of 12.8% for the year to June. increased by 9.9% (46,973m²). According to the IPD Index, rental values decreased by 0.7% in Availability in large buildings over 10,000m² decreased by 5.3% the first half of the year and were 2.2% lower than the same time (8,019m²) over the 12-month period. a year ago. New available floorspace decreased by 17.0% (17,018m²) over the We believe that prime yields in East Anglia have hardened to 12 months to June 2010. around 7% for multi-let estates, but softened to 7.25% for large distribution properties. East Anglia availability - last 10 years 0.7 East Anglia market performance indicators Jun 05 - Jun 10 Secondhand floorspace New floorspace 260 Total return 0.6 Index value December 2000 = 100 240 Capital growth 0.5 220 Rental value growth million m2 0.4 200 180 0.3 160 0.2 140 0.1 120 100 0.0 80 01 02 03 04 05 06 07 08 09 10 Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun 20 20 20 20 20 20 20 20 20 20 05 05 06 06 07 07 08 08 09 09 10 Source: King Sturge Research Source: IPD Speculative development Speculative development under construction within East Anglia East Anglia/South East contact increased from a very low base, by 74% in the six months since our previous survey. At the end of July 2010 there was a total Tim Johnson, Head of International Industrial Agency of 8,391m² being developed across three multi-unit estates, the 020 7087 5300, tim.johnson@kingsturge.com largest of which comprises 4,837m² and is due for completion at the end of the year. East Anglia speculative floorspace under construction 70 7 Floorspace m2 No. of schemes 60 6 Floorspace (000s m2) 50 5 40 4 30 3 20 2 10 1 0 0 Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul 01 01 01 02 02 02 03 03 03 04 04 04 05 05 06 06 07 07 08 08 09 09 10 10 Source: King Sturge Research 8
  • 10. South West Prime industrial rents (£/m²) Location Jan 10 July 10 Change in availability - Over 6 and 12 months Bristol 78.00 78.00 Within the South West, available floorspace increased by 0.2% Exeter 70.00 70.00 (3,656m²) during the first half of 2010, to reach a total of 1.478 Plymouth 56.50 56.50 million m². Swindon 59.20 59.20 Availability in large buildings over 10,000m² increased by 4.3% Assumes minimum of 1,000m². (18,632m²) in the six months, to 455,039m². At June 2010 this category accounted for 30.8% of the South West’s total supply. Investment market performance The industrial market in the South West produced a total return of Available new floorspace decreased by 10.5% (14.082m²) since 7.6% in the first half of 2010, according to the IPD Quarterly Index our last survey to 120,567m² at June 2010. New floorspace and 22.8% in the year to June. provided 8.2% of the region’s total available stock. Capital values in the first half of 2010 increased by 3.7% with an Over the 12 months to June, available floorspace in the South annual increase of 13.6% for the year to June. West increased by 6.1% (84,690m²). According to the IPD Index, rental values fell by 0.7% in the first Available floorspace in large buildings of over 10,000m² increased six months of the year and were 2.2% lower over the 12 months by 13.6% (54,425m²) in the same period. to June. New available floorspace fell by 19.2% (28,539m²) in the 12 We believe that prime yields in the South West have remained months to the end of June 2010. stable for multi-let estates, between 7½ - 7¾%, but for distribution properties yields have softened by 25bp to 6¾% at the end of South West availability - last 10 years June. 1.6 Secondhand floorspace New floorspace 1.4 South West market performance indicators Jun 05 - Jun 10 260 1.2 Total return Index value December 2000 = 100 240 Capital growth 1.0 million m2 220 Rental value growth 0.8 200 0.6 180 0.4 160 0.2 140 120 0.0 01 02 03 04 05 06 07 08 09 10 100 20 20 20 20 20 20 20 20 20 20 Source: King Sturge Research 80 Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun 05 05 06 06 07 07 08 08 09 09 10 Speculative development Source: IPD The level of speculative development under construction within the South West has increased by 59% over the past six months. South West agency comment At the end of July 2010, there was 15,031m² under construction across seven schemes, which represents an increase of 5,622m² “Clearly the occupier market remains subdued, but there is still a since January and 15% of the total speculative development for good undercurrent of activity throughout the region, particularly GB. in the larger size range. There are still good deals available for tenants but covenant strength is playing an increasing role in the South West speculative floorspace under construction deals that can be done with landlords being far more cautious 140 14 in their need to reduce void. The freehold market is slowly Floorspace m2 No. of schemes returning but this is partly driven by the complete lack of stock in 120 12 this sector. The continued manufacturing outfall in some areas Floorspace (000s m2) 100 10 is resulting in larger industrial premises coming to the market at 80 8 attractive pricing levels, providing good opportunities for owner occupiers. Good quality stock is proving attractive although 60 6 this is partly because speculative development remains very 40 4 constrained.” 20 2 Paul Baker, Partner (Bristol) 0 Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul 0 0117 930 5780, paul.baker@kingsturge.com 01 01 01 02 02 02 03 03 03 04 04 04 05 05 06 06 07 07 08 08 09 09 10 10 Tim Western, Partner (Exeter) Source: King Sturge Research 01392 429305, tim.western@kingsturge.com 9
  • 11. King Sturge: Industrial & Distribution Floorspace Today Wales Prime industrial rents (£/m²) Location Jan 10 July 10 Change in availability - Over 6 and 12 months Cardiff 55.00 53.80 Available floorspace in Wales increased by 5.4% (81,211m²) in the Newport 48.40 48.40 first half of the year, to 1.599 million m² at the end of June, the Swansea 45.75 45.75 largest six-monthly increase across all GB regions. Wrexham/Deeside 48.40 45.75 The availability of large buildings over 10,000m² decreased by Assumes minimum of 1,000m². 5.9% (37,173m²) to 597,585m² at June 2010 to represent 37.4% of Wales’ total available stock. Investment market performance The industrial market in Wales produced a total return of 5.7% New floorspace availability decreased by 16.4% (7,837m²) to in the first half of 2010, according to the IPD Quarterly Index and a total of 39,803m². At June 2010, new floorspace represented 13.1% in the 12 months to June. 2.5% of the region’s total available stock, the lowest percentage share of any GB region. Capital values in the first half of the year increased by 2.1%, with an annual increase of 5.1% for the year to June. Over the 12 months to June 2010, total available floorspace in Wales increased by 8.4% (123,394m²). According to the IPD Index, rental values decreased by 0.1% in the first half of the year and were 2.4% lower over the 12 months Available floorspace in large buildings increased by 7.8% to mid year. (43,173m²) in the 12 months to June 2010. We believe prime yields in Wales have hardened to 8¼% for The availability of new floorspace decreased by 31.4% (18,222m²) multi-let estates and remained stable at 7% for large distribution over this 12-month period. properties. Wales availability - last 10 years Wales market performance indicators Jun 05 - Jun 10 1.8 260 Secondhand floorspace New floorspace Total return Index value December 2000 = 100 1.6 240 Capital growth 1.4 220 Rental value growth 1.2 200 million m2 1.0 180 0.8 160 0.6 140 0.4 120 0.2 100 0.0 80 Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun 01 02 03 04 05 06 07 08 09 10 05 05 06 06 07 07 08 08 09 09 10 20 20 20 20 20 20 20 20 20 20 Source: King Sturge Research Source: IPD Speculative development Wales agency comment The level of speculative development under construction within “The M4 corridor remains the area of strongest demand with Wales has been on a declining trend since July 2007, and this only a small decrease in rental values to date, albeit, masked continued through the first half of 2010. Wales recorded a 66% to a certain extent by the increase in tenant incentives. Within decrease in the amount of floorspace under construction since the Valleys, capital values have dropped markedly however this January, with three small unit schemes totalling 2,198m² being price shift has sparked new occupier demand, particularly in developed at the end of July. The largest scheme comprises the lower and mid Valleys region. Speculative development has 1,394m² and all developments are due to reach practical slowed dramatically.” completion by October. Wales speculative floorspace under construction Chris Sutton, Joint Managing Partner (Cardiff Office) 60 12 02920 726014, chris.sutton@kingsturge.com Floorspace m2 No. of schemes 50 10 Floorspace (000s m2) 40 8 30 6 20 4 10 2 0 0 Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul 01 01 01 02 02 02 03 03 03 04 04 04 05 05 06 06 07 07 08 08 09 09 10 10 Source: King Sturge Research 10
  • 12. East Midlands Prime industrial rents (£/m²) Location Jan 10 July 10 Change in availability - Over 6 and 12 months Northampton 59.20 59.20 The amount of available floorspace in the East Midlands decreased Leicester 59.20 59.20 by 8.6% (173,390m²) in the first half of 2010, to reach a total Derby 56.50 56.50 of 1.838 million m² at the end of the year. This was the largest Nottingham 61.90 61.90 percentage fall in supply across all GB regions. Assumes minimum of 1,000m². Available floorspace in large buildings over 10,000m² fell by 20.8% (215,667m²) over the period, to 821,645m². Large buildings Investment market performance accounted for 44.7% of the total stock available at June 2010; the The East Midlands industrial market produced a total return of largest proportion recorded across all regions. 6.3% in the first half of 2010, according to the IPD Quarterly Index, and 18.2% in the 12 months to the end of June. New supply contracted by 21.9% (97,205m²) in the first half of the year to reach 346,778m². At June 2010, new floorspace accounted Capital values in the first six months of the year increased by 2.4% for 18.9% of the region’s total supply. with an annual increase of 9.6% for the year to June. Over the 12 months to June 2010, the level of available floorspace According to the IPD Index, rental values decreased by 1.0% in in the East Midlands decreased by 3.9% (73,909m²). the first half of 2010 and were 3.0% lower over the 12 months to the end of June. Availability in large buildings of more than 10,000m² decreased by 20.1% (206,107m²) over the same period. We believe that prime yields in the East Midlands have remained stable at 7½% for multi-let estates, but moved out by 25bp to New available floorspace decreased by 30.5% (152,178m²) 6½% for large distribution properties. between June 2009 and June 2010. East Midlands market performance indicators Jun 05 - Jun 10 East Midlands availability - last 10 years 260 Total return Index value December 2000 = 100 2.5 240 Secondhand floorspace New floorspace Capital growth 220 Rental value growth 2.0 200 180 million m2 1.5 160 140 1.0 120 0.5 100 80 Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun 0.0 05 05 06 06 07 07 08 08 09 09 10 01 02 03 04 05 06 07 08 09 10 Source: IPD 20 20 20 20 20 20 20 20 20 20 Source: King Sturge Research East Midlands agency comment Speculative development “Market conditions remain difficult but are showing improvement The level of speculative development under construction within the on the previous year. Overall the level of enquiries remain low, East Midlands increased by 6% during the first six months of the however a reduced supply of good quality accommodation is year, with a total of 10,916m² in four schemes under construction now beginning to match the levels of demand. Occupiers are at the end of July. This represents an increase of 652m² since taking advantage of the deals available in the market, whether January, with the largest scheme comprising 8,733m² and due for through discounted pricing or substantial incentives packages. completion in November. The limited availability of funding is impacting on freehold take- East Midlands speculative floorspace under construction up, with some businesses unable to move despite the desire 350 18 to, and reluctant to commit the levels of equity needed to Floorspace m2 No. of schemes 16 satisfy the banks’ loan to value ratios. Much of the new build 300 14 stock is gradually being taken-up and with limited speculative Floorspace (000s m2) 250 development we are continuing to see more design and 12 200 build deals completing, signifying greater levels of occupier 10 confidence. Poor quality stock in secondary locations continues 8 150 to struggle compared to modern space along the M1 corridor 6 or major industrial estates around the East Midlands’ cities.” 100 4 50 2 Matthew Smith, Partner (Nottingham) 0 Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul 0 01159 082123, matthew.smith@kingsturge.com 01 01 01 02 02 02 03 03 03 04 04 04 05 05 06 06 07 07 08 08 09 09 10 10 Source: King Sturge Research 11
  • 13. King Sturge: Industrial & Distribution Floorspace Today West Midlands Prime industrial rents (£/m²) Location Jan 10 July 10 Change in availability - Over 6 and 12 months Birmingham 61.90 61.90 In the first six months of the year, availability in the West Midlands Black Country 53.80 53.80 decreased by 3.5% (130,113m²) to 3.602 million m² at the end of Solihull 67.30 67.30 June 2010. Assumes minimum of 1,000 m². Floorspace available in large buildings over 10,000m² decreased by 7.5% (110,933m²) over the first half of the year. At June 2010 Investment market performance there was 1.359 million m² available, representing 37.7% of the The industrial market in the West Midlands produced a total return region’s total available stock. of 7.1% in the first half of 2010, according to the IPD Quarterly Index, and 19.7% over the year to the end of June. The amount of available new floorspace decreased by 20.0% (83,973m²) to 335,693m², equating to 9.3% of the region’s overall Capital values increased by 3.1% in the first six months of the total supply at June 2010. year, with an annual rate of 10.5% over the year to June. Over the year to June 2010, available floorspace in the West According to the IPD Index, rental values decreased by 2.0% in Midlands decreased by 1.0% (36,996m²). the first half of 2010 and were 5.1% lower, over the 12 months to June. Floorspace available in large buildings over 10,000m² decreased by 10.4% (157,103m²) during the same period. We believe prime yields in the West Midlands have remained stable at 7½% for multi-let estates, but moved out by 25bp to New available floorspace decreased by 23.8% (104,612m²) over 6½% for large distribution properties. the 12 months to the end of June. West Midlands market performance indicators Jun 05 - Jun 10 West Midlands availability - last 10 years 260 Total return Index value December 2000 = 100 4.0 240 Secondhand floorspace New floorspace Capital growth 3.5 220 Rental value growth 3.0 200 180 2.5 million m2 160 2.0 140 1.5 120 1.0 100 0.5 80 Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun 0.0 05 05 06 06 07 07 08 08 09 09 10 01 02 03 04 05 06 07 08 09 10 Source: IPD 20 20 20 20 20 20 20 20 20 20 Source: King Sturge Research West Midlands agency comment Speculative development “The tentative signs of improvement in the West Midlands The level of speculative development under construction within market demonstrated during the second half of 2009 have the West Midlands has decreased by 69% in floorspace terms gained momentum in 2010. The underlying trend is one of since our previous survey. At the end of July 2010 there was a steady and gradual recovery, although there have been spikes total of 3,704m² under construction across six small unit schemes, of activity where occupiers have either released requirements representing a decrease of 8,220m² since January. which have been on hold through the recession, or continue to West Midlands speculative floorspace under construction take advantage of distressed landlords/developers. The West 16 Midlands market has not been the focus for several of the 350 Floorspace m2 No. of schemes major build to suit distribution requirements recently, primarily 14 300 due to the lack of large sites which can accommodate National 12 Distribution Centres in excess of 50,000m². However, the Floorspace (000s m2) 250 10 existing stock of new/grey space is diminishing by virtue of the 200 8 demand for Regional Distribution Centres which are smaller 150 with requirements typically more footloose. The secondhand 6 market is perhaps 6–12 months behind the new market. There 100 4 are positive signs of a recovery but competition between 50 2 landlords is fierce, and rents and incentive packages continue 0 0 to drive deals.” Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul 01 01 01 02 02 02 03 03 03 04 04 04 05 05 06 06 07 07 08 08 09 09 10 10 Source: King Sturge Research Carl Durrant, Partner (Birmingham) 0121 214 9950, carl.durrant@kingsturge.com 12
  • 14. North West Prime industrial rents (£/m²) Location Jan 10 July 10 Change in availability - Over 6 and 12 months South Manchester 64.60 61.90 Total availability in the North West continued to rise modestly, in Trafford Park 67.30 64.60 the first half of the year, increasing by 0.7% (19,374m²) to reach a Warrington 64.60 61.90 total of 2.814 million m² at the end of June. Liverpool 51.10 51.10 Floorspace available in large buildings over 10,000m² increased by Assumes minimum of 1,000m². 4.8% (53,673m²) to 1.178 million m² in the six months to June 2010. Large buildings accounted for 41.9% of the region’s total Investment market performance supply. The industrial market in the North West produced a total return of 6.2% in the first half of 2010, according to the IPD Quarterly Index, Available new floorspace decreased further, falling by 5.2% and 16.1% in the 12 months to the end of June. (26,191m²) to 472,715m². At the end of June 2010, new floorspace accounted for 16.8% of the region’s total available stock. Capital values in the first half of the year increased by 2.3% with an annual rate of 7.7% over the year to June. Over the year to June 2010, the total level of floorspace available in the North West increased by 1.7% (46,605m²). According to the IPD Index, rental values decreased by 1.5% in the first six months of 2010 and were 3.5% lower over the 12 Floorspace in large buildings over 10,000 m² increased by 7.5% months to June. (82,246m²) over this 12-month period. We believe that prime yields in the North West have remained The amount of new floorspace decreased over the 12 months, stable at around 7% for multi-let estates and 6¾ to 7% for large contracting by 17.3% (98,978m²) since June 2009. distribution properties. North West availability - last 10 years North West market performance indicators Jun 05 - Jun 10 3.0 260 Secondhand floorspace New floorspace Total return Index value December 2000 = 100 240 2.5 Capital growth 220 Rental value growth 2.0 200 million m2 180 1.5 160 1.0 140 120 0.5 100 0.0 80 Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun 01 02 03 04 05 06 07 08 09 10 05 05 06 06 07 07 08 08 09 09 10 20 20 20 20 20 20 20 20 20 20 Source: King Sturge Research Source: IPD Speculative development North West agency comment At the end of July 2010, the level of speculative floorspace under “There has been renewed activity in the highbay warehouse construction within the North West had risen to 16,920m² in eight sector above 25,000m² in the North West over recent months schemes. This represents an increase of 20% (2,895m²) since with ongoing positive interest in many of the remaining January and the region now accounts for the largest share of speculatively built units of a similar size. This is a result of development across all GB regions with 17% of the total. occupiers taking advantage of strong negotiating positions and North West speculative floorspace under construction being opportunistic on both a freehold and leasehold basis in 250 20 order to cover existing and future requirements. There is now Floorspace m2 No. of schemes a shortage of supply in some size ranges, and consequently, 18 200 16 interest in design and build solutions has increased. Across other sizebands, enquiry levels have been sporadic although Floorspace (000s m2) 14 150 12 there is recent evidence of an upturn in activity. Rental levels 10 are still under downward pressure in locations where there is 100 8 high supply, but in prime areas such as Trafford Park, Warrington 6 and North Manchester, where rents have generally held up, 50 4 tenant incentives have now begun to stabilise. The freehold 2 market for units up to 3,500m² remains difficult, with potential 0 0 purchasers hamstrung by the lack of available finance.” Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul 01 01 01 02 02 02 03 03 03 04 04 04 05 05 06 06 07 07 08 08 09 09 10 10 Source: King Sturge Research David Brooks, Head of UK & Industrial Logistics Group (Manchester) 0161 238 6239, david.brooks@kingsturge.com 13
  • 15. King Sturge: Industrial & Distribution Floorspace Today Yorkshire & Humberside Prime industrial rents (£/m²) Location Jan 10 July 10 Change in availability - Over 6 and 12 months Leeds 61.90 61.90 In the first half of the year, available floorspace in Yorkshire and Doncaster 53.80 53.80 Humberside increased by 0.3% (8,924m²) to reach 2.882 million Hull 53.80 53.80 m² at the end of June 2010. Wakefield 59.20 59.20 Available floorspace in large buildings over 10,000m² increased by Assumes minimum of 1,000m². 3.7% (41,889m²) in the same period, to 1.186 million m². Large units provide 41.2% of the region’s total supply. Investment market performance The industrial market in Yorkshire and Humberside produced a Availability in new buildings decreased by 9.5% (66,336m²) in the total return of 6.1% in the first half of 2010, according to the IPD first half of the year to 631,305m². New floorspace accounts for Quarterly Index, and 14.2% in the 12 months to the end of June. 21.9% of the region’s total supply, the largest percentage share across all GB regions. Capital values in the first half of the year increased by 2.5% with an annual rate of 6.5% over the year to June. Over the 12 months to June 2010, total available floorspace for Yorkshire and Humberside increased by 2.4% (67,799m²). According to the IPD Index, rental values fell by 1.9% in the first half of the year and by 5.0% over the 12 months to June. Availability in large buildings increased by 8.9% (96,738m²) from June 2009 to June 2010. We believe that prime yields in Yorkshire and Humberside have hardened to between 7½ and 8% for multi-let estates and Available new floorspace decreased by 12.0% (86,202m²) over the remained stable at 6¾ to 7% for large distribution properties. 12-month period. Yorkshire & Humberside market performance indicators Jun 05 - Yorkshire & Humberside availability - last 10 years Jun 10 3.0 260 Secondhand floorspace New floorspace Total return Index value December 2000 = 100 240 2.5 Capital growth 220 Rental value growth 2.0 200 million m2 180 1.5 160 1.0 140 120 0.5 100 0.0 80 Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun 01 02 03 04 05 06 07 08 09 10 05 05 06 06 07 07 08 08 09 09 10 20 20 20 20 20 20 20 20 20 20 Source: King Sturge Research Source: IPD Speculative development Yorkshire & Humberside agency comment The level of speculative development under construction in “Occupier activity has increased since the beginning of the Yorkshire and Humberside has fallen since our last survey and the year, resulting in a number of recent deals, particularly on the region now represents only 4% of all development across GB. larger available units. Landlords are keen to fill voids and are At the end of July 2010 there was 3,746m² under construction prepared to offer significant incentive packages or negotiate within four schemes, a decrease of 28% on levels recorded in short-term deals until the market improves. Despite this, there January. The largest development comprises 2,388m² and is due remains a substantial supply of big sheds in the 12,000m² to for completion at the end of the year. 33,000m² range in the South Yorkshire region. Development of Yorkshire & Humberside speculative floorspace under construction any kind is rare and with very little speculative development we 250 16 are likely to see a shortage of quality stock under 10,000m² in Floorspace m2 No. of schemes the near future.” 14 200 12 Daniel Martin, Partner (Leeds) Floorspace (000s m2) 150 10 01132 355222, daniel.martin@kingsturge.com 8 Richard Harris, Partner (Leeds) 100 01132 355249, richard.harris@kingsturge.com 6 4 50 2 0 0 Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul 01 01 01 02 02 02 03 03 03 04 04 04 05 05 06 06 07 07 08 08 09 09 10 10 Source: King Sturge Research 14
  • 16. North Prime industrial rents (£/m²) Location Jan 10 July 10 Change in availability - Over 6 and 12 months Newcastle 51.10 - 53.80 51.10 - 53.80 Following a decrease in total availability in our last survey, Team Valley 51.10 - 53.80 51.10 - 53.80 availability in the North increased by 0.7% (9,722m²) in the first Stockton-on-Tees 37.70 - 43.05 37.70 - 43.05 half of 2010, to reach 1.438 million m² at the end of June 2010. Washington 48.45 48.45 Sunderland 43.05 43.05 Floorspace available in large buildings over 10,000m² increased by 3.2% (12,508m²) in the first six months of the year. At June Assumes minimum of 1,000m². 2010 there was 407,519m² available, representing 28.3% of the region’s total supply. Investment market performance The industrial market in the North produced a total return of 5.9% Available new floorspace fell by 17.0% (33,192m²) to 161,648m². in the first half of 2010, according to the IPD Quarterly Index, and At the end of June 2010 new floorspace accounted for 11.2% of 13.7% in the 12 months to the end of June. the region’s total available stock. Capital values increased by 2.3% in the first half of the year, with Over the year to June 2010, available floorspace in the North an annual rate of 6.2%. increased by 0.5% (7,434m²). According to the IPD Index, rental values fell by 2.1% in the six Floorspace available in large buildings over 10,000m² decreased months to June and by 3.0% over the full year. by 4.2% (17,832m²) during this period. We believe that prime yields in the North have hardened to around Available new floorspace fell by 22.7% (47,486m²) over the 12 7¾% for multi-let estates but have remained stable at 7% for large months to June 2010. distribution properties. North availability - last 10 years North market performance indicators Jun 05 - Jun 10 1.6 260 Secondhand floorspace New floorspace Total return Index value December 2000 = 100 1.4 240 Capital growth 1.2 220 Rental value growth 200 1.0 million m2 180 0.8 160 0.6 140 0.4 120 0.2 100 0.0 80 Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun 01 02 03 04 05 06 07 08 09 10 05 05 06 06 07 07 08 08 09 09 10 20 20 20 20 20 20 20 20 20 20 Source: King Sturge Research Source: IPD Speculative development North agency comment The level of speculative development under construction in the North increased in the first half of 2010, following very subdued “In general enquiry levels have remained consistent since the development over the past 18 months. At the end of July there start of the year and signs suggest this trend will continue. A was a total of 3,240m² under construction within the second number of companies have taken advantage of the favourable phase of one scheme, comprising six units due for completion at terms which currently can be negotiated, and a number of the end of the year. large transactions have subsequently been completed so far this year. However, this trend may change as the stock of North speculative floorspace under construction good quality available units diminishes leading to a hardening 140 14 in the terms on offer. The market still remains difficult within Floorspace m2 No. of schemes the secondhand sector, with a number of potential occupiers 120 12 having to go through lengthy approval processes before being able to commit, which is slowing the market down.” Floorspace (000s m2) 100 10 80 8 Simon Hill, Partner (Newcastle) 60 6 0191 279 0006, simon.hill@kingsturge.com 40 4 20 2 0 0 Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul 01 01 01 02 02 02 03 03 03 04 04 04 05 05 06 06 07 07 08 08 09 09 10 10 Source: King Sturge Research 15
  • 17. King Sturge: Industrial & Distribution Floorspace Today Scotland Prime industrial rents, (£/m²) Location Jan 10 July 10 Change in availability - Over 6 and 12 months Edinburgh (South Gyle) 75.35 75.35 Total available industrial floorspace in Scotland increased by 1.8% Rest of Edinburgh 67.30 67.30 (41,556m²) in the six months since our last survey, to 2.365 million Glasgow 64.60 64.60 m² at the end of June 2010. Glasgow Airport 64.60 64.60 In the first half of the year, available floorspace in large buildings Aberdeen 75.35 75.35 over 10,000m² increased by 2.6% (19,136m²). Large units account Assumes minimum of 1,000m². for 32.4% of Scotland’s overall supply, with 765,665m² available. Investment market performance The availability of new floorspace in Scotland fell by 22.1% The industrial market in Scotland produced a total return of 6.2% (19,336m²) since our last survey. At June 2010 there was 68,080m² in the first half of 2010, according to the IPD Quarterly Index, and of new supply, providing 2.9% of Scotland’s total available stock. 17.2% in the 12 months to the end of June. In the 12 months to June 2010, Scotland’s total available floorspace Capital values in the first half of the year increased by 2.5%, with increased by 6.2% (138,795m²). an annual rate of 8.0% to the end of June 2010. Floorspace in large buildings over 10,000m² increased by 14.4% According to the IPD Index, rental values fell by 0.9% in the first (96,437m²) in the same 12-month period. half of the year and were 0.3% lower over the year to June. Available new floorspace declined by 27.1% (25,323m²) over the We believe that prime yields in Scotland are around 7½% for multi- 12 months to the end of June 2010. let estates and between 6¾ to 7% for large distribution properties. Scotland availability - last 10 years Scotland market performance indicators Jun 05 - Jun 10 3.0 240 Secondhand floorspace New floorspace Total return Index value December 2000 = 100 2.5 220 Capital growth 200 2.0 Rental value growth 180 million m2 1.5 160 140 1.0 120 0.5 100 0.0 80 Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun 01 02 03 04 05 06 07 08 09 10 20 20 20 20 20 20 20 20 20 20 05 05 06 06 07 07 08 08 09 09 10 Source: King Sturge Research Source: IPD Speculative development Scotland agency comment The level of speculative development in Scotland has increased “Enquiries have remained at a steady pace but occupiers since our previous survey, as a result of a large unit scheme are still in the driving seat in most areas when it comes to commencing construction in Glasgow. At the end of July 2010 negotiating terms. Demand in Edinburgh is predominantly there was 14,731m² under construction in one scheme, which for the smaller size range of units from 300 to 500m² with comprises two units of 8,520m² and 6,211m² respectively. This evidence of some higher rents being achieved for trade counter represents an increase of 9,157m² since January and Scotland units in key locations with main road frontage. Secondary areas now accounts for 15% of all GB development. with large amounts of supply continue to struggle with headline rents potentially still decreasing, or with incentives being more Scotland speculative floorspace under construction inventive to try to attract tenants.” 120 12 Floorspace m2 No. of schemes 100 10 Kirsty Palmer, Partner (Edinburgh) 0131 243 2222, kirsty.palmer@kingsturge.com Floorspace (000s m2) 80 8 60 6 40 4 20 2 0 0 Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul 01 01 01 02 02 02 03 03 03 04 04 04 05 05 06 06 07 07 08 08 09 09 10 10 Source: King Sturge Research 16
  • 18. GB DISTRIBUTION MARKET New units of 10,000m2 and over
  • 19. King Sturge: Industrial & Distribution Floorspace Today Occupier Demand The East and West Midlands accounted for the next largest share of take-up at 25% and 21% of the total respectively, whilst the North The national picture West, North East and Scotland did not record any transactions in new units over 10,000m² in the six month period. During the recent recession, occupier take-up for new units over 10,000m² slumped to a 15-year low in terms of floorspace Sectors transacted, but since the weakest period of demand during the first half of 2009, take-up levels have shown steady improvement. Take up in the distribution market for the first half of the year was dominated by retailers, with many taking advantage of competitive In the first six months of 2010, a total of 452,567m² was taken- deals, resulting in the sector accounting for 70% of all transactions. up in 13 new units of 10,000m² and over. This is a similar level Non-food retailers took the largest share with a number of well to the take-up recorded in the second half of 2009 (491,345m²), known names and online retailers starting to implement supply but compares with only 132,503m² in the same period last year. chain requirements which had previously been put on hold. In addition, there are a further five transactions totalling over 100,000m² that have taken place during the third quarter of the Logistics firms were less prevalent in the market during the first year so far, together with a number of significant requirements, half the year, with only two transactions for the sector recorded, that will continue to push take-up higher. although this could be an indication of retailers managing their supply chain networks in-house. During the first half of the year, two thirds (65%) of all new floorspace taken-up was speculatively developed space, with the Online and grocery retailers will continue to drive the occupier design and build market accounting for 35%. This is a reversal recovery, with some very large active requirements in the market. of historical trends whereby speculative floorspace has generally Take-up of new logistics facilities of 10,000m2 and over by sector accounted for only one third of transactions. The increase in 100 speculative take-up is a result of occupiers generally benefiting from a good choice of speculatively developed product, available 90 on competitive terms. However, as speculative supply becomes 80 limited in certain locations, companies requiring new facilities 70 will need to seek design and build solutions, or potentially good 60 quality, modern secondhand space. 50 40 Take-up of new logistics facilities of 10,000m2 and over in GB 30 1.8 90 20 1.6 80 10 1.4 70 0 2005 2006 2007 2008 2009 2010 H1 1.2 60 Transactions million m2 1.0 50 Food retail Non-food retail Logistics 0.8 40 0.6 30 Manufacturing Other 0.4 20 Source: King Sturge Research 0.2 10 0.0 0 Size analysis 99 00 01 02 03 04 05 06 07 08 09 1 H In the first half of 2010, the average size of unit taken-up (in new 19 20 20 20 20 20 20 20 20 20 20 10 20 Floorspace (m2) No of occupier transactions units of 10,000m² and over) was 34,812m². This represents a marked increase in the average unit size recorded in previous years Source: King Sturge Research (23,105m² for 2009 and 27,728m² for 2008) and signifies a return of confidence for occupiers in taking larger units. Over the period Regions 2000-2009 the average size of units taken-up was 26,325m². Regionally, London, the South East and Eastern combined Average size of unit taken-up in new logistics facilities of 10,000m2 accounted for the largest share of floorspace taken-up in the first and over half of 2010 at 28% of the total. The regions’ share was boosted by two large design and build transactions by retailers in Dagenham and Andover respectively. 35,000 Trend line 30,000 Regional take-up of new logistics facilities of 10,000m2 and over in GB 25,000 2009 2010 0% 0% 0% 0% 0% 20,000 North West m 2 5.9% 10.9% 6.1% West Midlands 28.1% 15,000 7.5% London, South East/Eastern 37.8% 25.2% South West & Wales 10,000 9.5% Scotland East Midlands 5,000 15.2% 16.4% Yorks & Humberside 18.0% 19.4% 0 North 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 H1 Source: King Sturge Research Source: King Sturge Research 18
  • 20. Supply According to latest forecasts, distribution rental values are expected to see further downward adjustments this year and Speculative development next, before returning to modest growth in 2012. The following table presents the general tone of prime headline rents for new At the end of June 2010, available new speculative supply across logistics units across GB. GB stood at 1.598 million m² in 76 units of 10,000m² and over. New supply therefore fell by a further 288,190m² during the first Prime logistics rents half of 2010 and the level at mid 2010 compares with 1.886 million m² at the end of 2009, and 2.294 million m² at the end of 2008. The Location £ per m² supply of large new distribution facilities is now 39% lower than London (Heathrow) 140.00 its peak in March 2008 (2.621 million m²). London (East - Dagenham) 80.00 Bristol 61.90 The supply of new distribution space varies considerably by region, Birmingham 59.20 highlighting a North-South divide. Yorkshire & Humberside and the Manchester 51.10 North West account for large shares of current supply, and with demand remaining patchy in these areas, there is still a window Leeds 51.10 of opportunity for occupiers to secure soft deals. In the wider Scotland - M8 corridor 48.40 South Eastern (London, South East and Eastern) and South West Assumes minimum of 10,000m². markets, however, the supply of new or good quality distribution units is rapidly diminishing. In these locations, occupiers are less Investment comment likely to be able to negotiate bargains and will be forced to consider Investor demand within the distribution sector, has cooled since design and build solutions or modern, secondhand stock to satisfy the beginning of the year reflecting ongoing concerns with the their requirements. wider economy and the occupier market remaining fragile. Whilst there is still a considerable weight of money available and relatively Speculative development in the logistics market came to a good demand from investors, they are generally more discerning standstill at the middle of 2009 and no new development has and refocused on prime. The General Election and Budget caused started nationally since then. There are currently no new buildings investors to be even more cautious in their purchases and of 10,000m² or over under construction speculatively across GB they placed greater focus on property fundamentals causing a and whilst the occupier market remains fragile, development is narrowing in the definition of prime. unlikely to start before 2011. However, some developers and funds have started the first strategic site acquisitions since Recent transactions indicate that prime distribution yields for 15- before the recession, and if the gradual improvement in demand year income have softened to around 6½%, compared with 6% continues, speculative development could be considered for in December. selective locations next year. According to the IPD Quarterly Index, the UK distribution market Rents produced a total return of 7.4% in the first half of 2010, and 22.5% Prime headline rents have remained stable, although these in the year to June. are largely propped up by generous incentive packages. In most areas, the market is still more favourable to tenants, with Capital values in the first half of the year increased by 3.6% with occupiers taking advantage of very competitive deals. Rent free an annual increase of 13.9% to the end of June 2010. periods of up to 12 months are being offered for five year terms, whilst stepped rentals and capital contributions to fit-outs are still According to the IPD Quarterly Index, rental values fell by 1.1% in common. However, in the areas of tight supply, these incentives the first half of the year and were 2.9% lower over the full year. are now tightening. 19
  • 21. IDFT I N D U STRIAL & DISTRIBUTION FLOO R S PA C E T O D AY Contacts Head of UK Industrial & Logistics Group (Manchester) David Brooks +44 (0)161 238 6239 Head of International Industrial Agency (London) Tim Johnson +44 (0)20 7087 5300 Head of Research Angus McIntosh +44 (0)20 7087 5500 Industrial Research Jon Sleeman +44 (0)20 7087 5515 Industrial Research Anna Behan +44 (0)20 7087 5516 Agency London Andy Harding +44 (0)20 7087 5310 London Gus Haslam +44 (0)20 7087 5301 London Tim Clement +44 (0)20 7087 5303 Bath Huw M Thomas +44 (0)1225 32 4109 Birmingham Carl Durrant +44 (0)121 214 9950 Bristol Paul Baker +44 (0)117 930 5780 Cardiff Chris Sutton +44 (0)29 2072 6014 Edinburgh Kirsty Palmer +44 (0)131 243 2222 Exeter Tim Western +44 (0)1392 429 305 Glasgow David Cobban +44 (0)141 225 0516 Leeds Daniel Martin +44 (0)113 235 5222 Leeds Richard Harris +44 (0)113 235 5249 Manchester Steven Johnson +44 (0)161 238 6238 Newcastle Simon Hill +44 (0)191 279 0006 Nottingham Matthew Smith +44 (0)115 908 2123 Southampton Matthew Poplett +44 (0)23 8038 5621 All data contained in this report has been compiled by King Sturge LLP and is published for general information purposes only. While every effort has been made to ensure the accuracy of the data and other material contained in this report, King Sturge LLP does not accept any liability (whether in contract, tort or otherwise) to any person for any loss or damage suffered as a result of any errors or omissions. The information, opinions and forecasts set out in the report should not be relied upon to replace professional advice on specific matters, and no responsibility for loss occasioned to any person acting, or refraining from acting, as a result of any material in this publication can be accepted by King Sturge LLP. © King Sturge LLP SEPTEMBER 2010 This publication is printed on recycled, post-consumer fibre, totally chlorine free paper produced from sustainable stock. FSC certification. www.kingsturge.com
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