Robust enquiry levels show demand for industrial space in the Midlands is strong despite current economic uncertainty, pointing to a positive outlook for 2018. Those holding strategic land positions who are able to deliver well-located speculative schemes or build-to-suit options will reap the rewards as overall demand outweighs supply.
The end of the last market cycle saw speculative development move beyond prime into secondary and, in some cases, what was then regarded as tertiary sites. This is not the case in the current cycle and selective speculative development remains focused predominantly on prime sites. This is ultimately a good thing for the market as it reduces the potential for over supply.
Big sheds remain the preferred choice for new development, though more small and medium-sized units of between 30,000 sq ft and 80,000 sq ft are definitely needed, thanks to the rise of ecommerce and demand for ‘last mile’ delivery hubs. There is also a strong case for building units of sub-30,000 sq ft for occupiers looking to upgrade or upsize from smaller units. We would certainly like to see more of these and they should stack up with rental and freehold evidence now in place to support such schemes.
The industrial sector tends to see small changes to specification over a typical cycle but it’s notable in this one that occupiers are very much focused on increased eaves heights and yard depths. One of the key criteria for occupiers currently, in addition to labour and location, is the availability of power. We will only see this increase with the introduction of electric vehicles for general and commercial use.
Industrial rents are expected to grow at a rate of circa 2.5 per cent per annum nationally, though some areas of the Midlands, such as the M42 corridor, are already well ahead of this.Top rents in the M42 corridor hung around £6 per sq ft for a good while but are considerably in excess of this now. We are already quoting £7 per sq ft and above on some sites and expect actual rents to reach this new milestone in 2018.
Full year take-up for 2017 was roughly in line with the 10-year average. Once political issues start to be ironed out, and with several big deals rolling over from last year, 2018’s take-up could well be significantly higher.