The UK industrial and logistics sector is set to see record demand and the return of meaningful speculative development for the first time since 2008, according to new research from national property consultancy Lambert Smith Hampton (LSH).

LSH---Geoff-GibsonIn the East Midlands, 2013 saw take-up of industrial and logistics property soar by 51% to more than 1.2million sq ft and rentalvalues increased by up to 6.4%.

The region is one of the few in the UK with a goodsupply of new or grade A buildings, with 10 grade A buildings of 100,000 sq ft or above on the market at the end of the year.

The latest edition of the LSH annual Industrial & Logistics Market report reveals that nationally take-up increased by 24% to94.2m sq ft in 2013. This came in response to the economic recovery, an improving manufacturing sector, the ongoing drive by retailers to streamline their supply chains and growing appetite from logistics businesses serving the burgeoning e-commerce industry.

With these factors set to grow in importance in the short term, LSH predicts that there is sufficient demand for take-up in 2014 to exceed the record 101m sq ft achieved in 2010.

Geoff Gibson, LSH industrial and logistics director for the East Midlands, said key deals were: a 640,000 sq ft build to suit unit at Derby Commercial Park pre-let to Kuehne & Nagel; a 330,000 sq ft unit at Hinckley Commercial Park freehold purchase by DPD; a 300,000 sq ft unit let to Norbert Dentressangle at Crick Crossdock; a 265,000 sq ft unit pre-let to UDG at Castlewood, Nottingham; and the 157,740 sq ft DC3 unit let to Tool Station at DC3, Daventry.

Sean Bremner, Director in LSH Nottingham said, “In Derby, development opportunities have increased, with new sites and parks being introduced to the market in response to the diminishing availability of good quality second hand stock. Buildings of superior quality have seen rental levels maintained and reduced tenant incentives.

“In Nottingham, activity continued to concentrate in the second hand mid box range which has led to developers offering attractive timescales for the delivery of build to suit solutions. Rents have stabilized, although tenant incentives have reduced and average lease lengths have increased.”

Geoff added “Meanwhile, in Leicester recent transactions highlight the trend towards new build and build to suit opportunities due to an acute shortage of grade A supply throughout the region across all size sectors.”

The Industrial & Logistics Market report also finds that improving occupier appetite, combined with a lack of developmentactivity that stretches back to before the global financial crisis, has led to a shortage of top quality (grade A) space in much of the UK.  Grade A now represents just 9% of total available supply, down from a peak of 29% in 2008.

As a result, LSH forecasts that over 2m sq ft of space could be built speculatively during 2014 – the first meaningful volume of activity since 2007/8. Although this represents a significant increase overrecent activity, it accounts for only 7% of current grade A availability and is unlikely to stem the upward press on rents.

By analysing current demand and availability – the first time this has been done on a national basis – the report identifies the Midlands and South East and the mid box (50,000 – 99,999 sq ft) and large building (100,000 sq ft +) size bands as most likely to see rental growth over the coming year.

LSH---Sean-Bremner1Geoff said: “The market has recently staged a strong recovery and the outlook for the industrial and logistics sector over the next 12 months is more encouraging than at any time since 2008. Improving confidence is driving demand to the extent that 2014 take-up could set a new record, exceeding the record 101m sq ft achieved in 2010.”