Lack of quality commercial space in the North East

Increased commercial activity in the region, a steady demand and a more positive outlook are the findings in a series of new reports. But a lack of quality space is said to be a limiting factor

Transport Secretary Patrick McLoughlin announces the Hitachi high speed rail deal
Transport Secretary Patrick McLoughlin announces the Hitachi high speed rail deal

Increased commercial activity in the region, a steady demand and a more positive outlook are the findings in a series of new reports. But a lack of quality space is said to be a limiting factor.

Agents Knight Frank said the first half of 2013 has been more active for logistics and industrial activity than the same period of 2012. Overall take-up of buildings over 50,000 sq ft was up by some 7.6%.

Year on year, however, take-up of 984,147 sq ft was down 19%. The underlying message is that the 12-month period was difficult, but there has been noticeable improvement for the first half of 2013.

There is a shortage of new product with new-build availability above 50,000 sq ft restricted to a single unit. “As a result, second-hand space has dominated take-up over the last six months,” says Simon Haggie, industrial and logistics director at Knight Frank. “There has been only one new-build deal so far this year, Parcelforce’s freehold purchase of Drum 3, Chester-le-Street.”

Occupier demand has shown gradual improvement in 2013, with the majority of enquiries for units below 10,000 sq ft. While enquiry levels for units in excess of 100,000 sq ft have fallen, demand for units between 20,000 and 50,000 sq ft has been on the rise.

“While there was not a single new-build of any consequence on site this year, two large, purpose-built facilities, will soon commence construction.

“These comprise Hitachi Rail Europe’s 463,000 sq ft rail carriage plant at Newton Aycliffe and Rolls Royce’s new 322,000 sq ft purpose-built facility at Wear Industrial Estate, which will see the engine manufacturer relocate from their present site in Sunderland,” says Mr Haggie.

He adds: “Strong demand continues to be seen from the advanced engineering sector, particularly the offshore and subsea sectors along with Nissan Automotive.

“However, Nissan and its top-level suppliers will play less of a headline role in 2013 due to the fact that most expanded in 2012 in preparation for production of the new Leaf electric car.”

There is an acute shortage of new and modern units on Tyneside, predominantly in the 20,000 to 50,000 sq ft range, where there has been a noticeable increase in demand. There is also strong demand from the engineering sector for high bay buildings with crane-age.

Knight Frank say the outlook is for the marginal improvement in enquiries and take-up seen so far this year to build into the second half of the year. Despite tight levels of supply, headline rents will continue to flat line across the region. However pressure on supply will continue to harden rental incentives, particularly for Grade A space.

But the lack of Grade A industrial space has led to a slow-down in overall take-up, with the reduction of stock leading to a fall in investment volumes of 18%, according to research by national property consultancy, Lambert Smith Hampton (LSH).

In a review of the first half of 2013, results showed that total industrial investment across the North East and Yorkshire stood at £69.59m, compared to £85m in H1 2012.

Rapidly diminishing supply of space for smaller occupiers

Despite a good supply of large, grade A warehouse and logistics facilities over 100,000 sq ft in the region, LSH has calculated that there is less than one month’s supply left of the traditionally more sought after smaller sheds.

According to RICS’ commercial property survey, demand for shops, offices and industrial units in the North East remained steady during the second quarter of the year (April-June) as a stable number of would-be tenants registered interest for available business property.

While the lion’s share of growth across the UK was seen in London, most commercial property markets across the country saw an uplift.

In tandem with stable demand, the amount of available retail property across the region increased by 3%, while more surveyors reported a rise in the amount of available offices on the market. However, available industrial units dipped slightly.

The downturn saw construction levels drop considerably, and surveyors reported the amount of new retail, industrial and office developments being built as static.

William Naylor, of Naylors in Newcastle said: “Markets are improving with increased levels of enquiries as there is plenty of choice.”

 

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