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Demand for Midlands industrial properties hots up

David Binks
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Last year saw a massive 17.6 per cent leap in the volume of transactions on industrial properties of more than 100,000 sq ft in the Midlands, as the economic recovery continued to pick-up pace, according to the Birmingham office of global real estate adviser Cushman & Wakefield.

Total take-up in 2014 of the region’s 100,000 sq ft plus properties was 8.79m sq ft of space, which was slightly up on 2013 (8.63m sq ft), itself the best year for transactions since 2008.

In addition, 2014 saw a huge increase in demand for industrial properties across the board, with the volume of enquiries increasing by 5.5 per cent compared to 2013 and the overall space required increasing by  10 per cent.

David Binks, industrial partner at Cushman & Wakefield in Birmingham (pictured), said: “The improvement in total take-up, volume of enquiries and overall space required witnessed in 2014 is a clear indication that confidence continues to grow in the industrial sector amongst occupiers.

“The improving economic conditions continue to encourage business growth leading to increased demand to accommodate both expansion and relocation requirements.”

He added that the increase in demand had exacerbated the long-standing problem in the Midlands of the lack of availability of grade ‘A’ space. As a result, occupiers found that in 2014 there was less choice available, with some forced between opting to wait for existing buildings or speculative developments or entering the design and build market.

For those unable to wait for buildings to be constructed, and with grade ‘B’ space being limited as well, the only option left was to look at grade ‘C’ space.

Mr Binks said in 2014 many firms opted to go down this route as a temporary solution, particularly those with fixed-term contracts to fulfill in sectors such as automotive and distribution.

This helped boost take-up of grade ‘C’ industrial space during the year, with 16 transactions of buildings of more than 100,000 sq ft totaling 3.65m sq ft being completed, compared to 2013 where three transactions were completed totaling 830,000 sq ft. Take-up of similar sized grade ‘B’ space was less, at 2.14m sq ft compared to 2013 which was 2.62m sq ft, although this reduction is a function of the limited supply of facilities available of this quality.

Mr Binks said: “We believe the increase in grade ‘C’ take-up is reflective of occupiers requiring immediate occupation of buildings on three to five year term certain deals, rather than better quality buildings where longer lease terms would be required.

“This is especially the case for third party logistics companies, where contract lengths tend to be three and 5 years, and more lease flexibility is important.

“The shift in demand for grade ‘C’ space in 2014 over grade ‘B’ is reflective of a greater quantity of take-up in of the latter in 2013, which significantly reduced stock levels.

“Essentially the market has continued to polarise, if an occupier wanted to take occupation of a building in 2014, grade ‘C’ or speculatively developed grade ‘A’ units formed the majority of available stock.”

With many occupiers opting for either lower quality buildings which already existed or speculatively developed units, there was also a decline in the design and build market in 2014, with completed transactions reducing considerably from 3.96m sq ft across 11 transactions in 2013, to just 2.12m sq ft across seven transactions in the last year.

Mr Binks said: “In the absence of choice, occupiers have tended to go to either the bottom end grade ‘C’ buildings or the top end speculative buildings. There’s been an absence of anything in the middle.”

He added that it was hoped that the continuing recovery of the market would see more developers undertaking speculative development, which he is pleased to say appears to be the case with a number of schemes either planned or under construction.