TThe average value of land across 13 top industrial locations around the country rose by 5% to £790,385 per acre in the year to February. By contrast, land values shot up 21% during the previous year and nearly 18% the year before that.
The biggest land value increase over the past year happened in Manchester. Values have also increased sharply in Park Royal in west London, where they reached the £3m-per-acre level, and Enfield in north London, up to £2.2m per acre.
By contrast, last year’s development completions totalled just 2.4m sq ft. Although CBRE estimates that the volume of completions will increase significantly this year to about 6.7m sq ft, more than half this space is pre-let.
“Despite an easing in office-based employment growth, this moderate supply response means that London office rents are protected from the large falls seen in other cycles,” says Kevin McCauley, head of London research at CBRE.
The other potential danger typically is a surge in the amount of secondhand space hitting the market. One of the main causes of the 2001 downturn was the high volume of space dumped on to the market by financial occupiers. The amount of secondhand space available to let in central London catapulted from less than 3.3m sq ft in 2000 to more than 12.4m sq ft the following year.
GVA’s report says the EU referendum result was partly to blame for the weaker growth in land values.
“There are a number of reasons for the slowdown, including the Brexit vote, which deterred a number of investment companies from progressing speculative development, but also a levelling off in investment yields and continued increase in build costs,” says David Willmer, senior director of national industrial and distribution team at GVA.
However, speculative development activity has picked up again in recent months as developers have regained confidence, he adds.
“A good level of speculative development is under way, although focused particularly on big sheds [100,000 sq ft and above],” he says.
Currently, 3.1m sq ft of speculative units are under construction across the country, according to GVA. One of the reasons for the renewed interest is the continued strength of the occupational market since the Brexit vote.
Rental growth remained positive in the year to the end of February, with prime distribution net effective rents increasing by an average of 2.5%.
GVA forecasts that rents will continue to grow over the coming year by around 1.7%. “Generally, supply remains tight, which will continue to put an upward pressure on rents, particularly for grade-A and grade-B stock,” says Willmer.