North East held back by lack of industrial space - claim

The Newcastle office of national property consultancy says that despite a predicted record demand for industrial space, the region will struggle

Tim Powner, associate director at LSH's Newcastle office
Tim Powner, associate director at LSH's Newcastle office

Record demand is forecast in the UK industrial property sector, coupled with the return of meaningful speculative development for the first time since 2008.

But national property consultancy Lambert Smith Hampton adds that the North East is being held back by lack of industrial space.

Its annual Industrial & Logistics Market report reveals that take-up increased by 24% to 94.2m sq ft in 2013 in response to the emerging economic recovery, an improving manufacturing sector, the ongoing drive by retailers to streamline their supply chains and growing appetite from logistics businesses serving e-commerce industry.

With these sectors set for significant short-term growth, the authors predict sufficient demand for take-up in 2014 to exceed the record 101m sq ft achieved in 2010.

The report also finds that improving occupier appetite, combined with a lack of development activity that stretches back to the start of the recession, has led to a shortage of Grade A space in much of the country.

As a result, Lambert Smith Hampton forecasts that more than 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 over recent activity, it accounts for only 7% of current Grade A availability and is unlikely to stem the upward press on rents.

The North East continues to be held back by an undersupply of Grade A building in the mid box (50,000-99,000 sq ft) size bracket, owing to a combination of a lack of development finance and capital/rental values failing to reach pre-recession levels.

Tim Powner, associate director at LSH’s Newcastle office, said: “Supply in the region remained relatively stable at 17.1m sq ft. However, take-up reduced slightly to 3.5m sq ft in comparison to 2012 figures.

“Prime rents across the North East stabilised during 2013, and we witnessed a reduction in incentive packages being offered by landlords but secondary rental values remain below pre-recession levels.”

Significant deals to complete in the region during 2013 included British Engineers’ freehold purchase of the 159,102 sq ft ST 160 in South Tyneside and EBAC’s purchase of the 154,590 sq ft former Radius Systems premises in Newton Aycliffe.

Powner added: “The continued growth of internet shopping will remain an important driver over the coming year as logistics operators work out how best to respond to evolving consumer habits.

“Traditional retailers are also looking to streamline their supply chains in order to improve speed to market and boost margins at a time when price rises are proving difficult to implement.”

One developer bucking this trend is Highbridge Properties, which this week announced a collaboration with North Tyneside Council to create a new industrial site with the capacity to generate more than 1,000 jobs.

Indigo Park, which is already fully let, will be an 82-acre strategic employment site at Sandy Lane, close to the A1 at Gosforth Park, Newcastle.

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