Constrained supply to deliver rental growth?

There is potential for strong regional rental growth as supply remains constrained.

29 September 2014, words by Kevin Mofid


■ The buoyant occupier market in the UK logistics sector has started to impact on supply levels drastically. 
At the midpoint of the 2014 take-up has already reached 13.5 million sq ft, 71% of the total for 2013. Given the large scale requirements Savills are currently tracking we estimate that 2014 take-up will comfortably surpass 2013 levels.

Click Graph 2 below to enlarge

Graph 2

■ The same level of buoyancy can also be applied to the regional office market with take-up rising to just over 9 million sq ft in 2013, a rise of 32% on 2012. Expectations are that 2014 will exceed 2013 as take-up levels for the year to date are 22% up on last year. The strongest growth this year has been in Manchester and Cardiff, where take-up has risen by 38% and 69% respectively.

■ These levels of take-up have had a dramatic impact on the levels of supply in most markets. Of the eight regional office markets Savills cover all but two have seen supply levels fall. The largest fall in supply has been in Leeds, while Manchester and Cardiff are the two centres where supply has risen due to development completions.

■ Within the logistics market Grade A stock levels have fallen by 17% year on year and now stand at 12.5 million sq ft. Given that three deals in 2014 have all been close to one million sq ft it is clear to see that some markets will have less than a years worth of supply.

■ With the occupational market pointing to what seems like the perfect conditions for speculative development it remains surprising that more schemes have not been committed to. In the logistics market we are currently tracking 14 schemes under construction that total just 2.7 million sq ft. The office market too is displaying similar characteristics with just 13 schemes under construction totalling 1.28 million sq ft.

■ In turn this has seen a large portion of the logistics market return to design and build opportunities as developers prepare land for development. Indeed 75% of all Grade A take-up in the logistics sector in 2014 has been classified as design and build. We expect this figure to rise even further into 2015, especially given that we are currently tracking development sites for logistics that have the long term potential to accommodate up to 157 million sq ft of development. However it should be noted that many of these schemes remain in the planning process and years away from delivery.

Click Graph 3 below to enlarge

Graph 3

■ With these supply and pipeline constraints it is clear to see the potential for strong regional rental growth. Indeed, Leeds, Manchester, Bristol and Birmingham are all expected to see office rental growth of over 3% pa to 2018.

■ Even the industrial sector with previously unheard rental growth is now forecasting almost 2.5% per annum in the Midlands, Yorkshire and the North West.



Key Contacts

Mark Ridley

Mark Ridley

Chief Executive Officer
Savills UK & Europe

Savills Margaret Street

+44 (0) 20 7499 8644


Kevin Mofid

Kevin Mofid

Commercial Research

Savills Margaret Street


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