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DTZ Research: Grade A industrial take-up rose 7% in Q3 2012

wantspacegotspace.co.uk - DTZ Research: Grade A industrial take-up rose 7% in Q3 2012DTZ, has released the findings of its Property Times UK Industrial Q3 2012 report which covers the market for properties over 50,000 sq ft. The report revealed that take-up of grade A space rose nearly 7% in Q3, the first quarter-on-quarter rise for nearly 18 months. As a result of strong grade A take-up, the availability of prime space eroded and fell nearly 7% to 15m sq ft.

Overall, take-up in the quarter fell 30% to 5.6m sq ft across 44 deals, the lowest level since Q1 2009, reflecting occupiers’ preference for the best buildings. Total availability rose 1.3% to 142m sq ft, the first quarter-on-quarter rise in nearly two years, as a number of secondary units came to the market across the UK.

The report found that many occupiers have turned their attentions to freehold and leasehold build-to-suit deals in order to satisfy their requirements due to a lack of suitable grade A stock. As a result, bespoke take-up rose 54% to 1.2m sq ft, accounting for 22% of total take-up.

DTZ Research also found that the profile of occupiers had changed considerably from Q3 2011, with retail demand falling from 51% to 10% whilst demand from manufacturing increased by 41%. However, the reduction in take-up by retailers is expected to bounce back over the forthcoming quarters.  

Regional proportions of grade A space remain at historically low levels, with over half the regions grade A space constituting less than 10% of total availability. The North West and North East retained their status as the regions with the lowest amount of available grade A space.

Nick Atkinson, Director, Industrial agency at DTZ in Newcastle commented: “The increase in take-up of Grade A space is very welcome, but it also highlights the ever diminishing supply of available space in that category, hence the substantial increase in activity in the build to suit market. The increase in supply of secondary space will provide opportunities for some, but the lack of good quality space will be driving upwards pressure on rents and downward pressure on incentives.”

Take-up in the North East fell to 508,000 sq ft from Q2, over three times the Q3 2011 level. Despite being restricted by a lack of available stock, one grade A letting completed; CMP Products, part of British Engines, bought 79,000 sq ft of warehouse space at Nelson Park, Cramlington. The outlook for the region is positive however, with a number of active requirements from food production companies and demand emanating out of the Hitachi trains contract in Newton Aycliffe.

Nick Atkinson continued: “As was the case in 2011 the number of large enquiries has increased significantly in Q4, but the supply of grade A buildings 45% lower than this time last year. We are therefore seeing competition for the few remaining good quality buildings which still represent better value than new build solutions. UK Land Estates will complete the refurbishment of a 100,000 sq ft former Marks & Spencer warehouse at Tyne Tunnel in December and we expect to see a further 260,000 sq ft back on the market in Seaham following the demise of Cumbrian Seafoods. These will improve the supply equation, but the vast majority of grade A stock is mostly concentrated in just two locations, the other major player being Drum Park on the A1(M) near Chester le Street.”

Industrial investment volumes fell in Q3 2012 to £435m across 38 transactions which is nearly 50% below average and the lowest volume for two and a half years.

Ben Burston, Head of UK Research at DTZ comments: “The industrial investment market is polarised, with very strong demand for multi-let grade A product and well-let warehousing with lengthy unexpired lease terms. Demand for secondary product, on the other hand, is subdued given widespread caution over the occupational market. The scarcity of stock meeting investors preferred criteria is impacting on overall investment volumes.”

Posted by The Editor (wantspacegotspace) on 13th November 2012

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