The Yorkshire industrial market faces a significant supply/demand imbalance, according to figures from Savills.
Over the past five years, average take-up has lingered at around the 3.35m sq ft mark, but at the moment total supply stands at just 1.98m sq ft. The supply shortfall is partly a hangover from the last property cycle, when a series of spec-built sheds stood empty. This appears to have deterred investors from pushing the button on spec schemes in the current cycle.
“The last cycle wasn’t really about developers taking on the risk - it was funds that were overweight with money and they all had the same idea at the same time,” says Rob Oliver, industrial director at GVA. “This time around, institutions are selectively investing in spec product across the country and they are being quite cautious.”
As a result, there is a dearth of supply with any new-build spec development shifting almost as soon as it is announced.
“Verdion, iPort’s developer, saw the limited supply of grade-A distribution space within the market and committed to speculatively developing two units, both of which let immediately on practical completion to Fellowes and Amazon, demonstrating the latent demand,” says Robert Whatmuff, director in the industrial and logistics team at Colliers International.
Buoyed by this success, Verdion is currently on site with a spec-built 195,000 sq ft warehouse, with further spec units of 178,500 sq ft and 190,000 sq ft to follow.
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While there is a shortage of stock across all size ranges, the major issue is in the 100,000 sq ft to 200,000 sq ft bracket - in the past five years, there have been 35 deals of this scale, according to Savills.
“If you’re looking around Yorkshire there isn’t an existing building of that size available, whereas in the North West a couple have been built speculatively,” says Scott Morrison, senior surveyor at Cushman & Wakefield. “Brexit may have made some people more cautious about pulling the trigger, but the reality is there is nowhere for deals of that size to land at the moment.”
Another factor that has made people more reluctant to take a punt on spec development is rental levels, which haven’t moved much in the past few years. However, that situation is slowly changing, according to Mike Baugh, senior director of industrial agency at CBRE.
“Occupiers are starting to realise they can’t get the highly incentivised deals they were getting during the downturn,” says Baugh.
“We are now starting to see an improvement in rents, which are pushing towards the £6/sq ft mark. This is a positive sign and it still gives us a price difference from the North West and South East.”
While rental growth may persuade some developers to push the button on sites with planning approval, the ongoing problem the market needs to address is the lack of available land, says Dave Robinson, industrial director in Savills’ Leeds office.
“A large proportion of the employment land allocated in Doncaster’s proposed 15-year plan was developed within a year, which the local authority could never have foreseen. So it is important that local authorities across Yorkshire regularly review their local plans to free up employment land where possible, allowing the region to meet industrial demand and attract inward investment.”
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