Leeds, UK Take-up in West Yorkshire for units above 50,000 sq ft reached 1 million sq ft during the first half of 2015, representing a 60% reduction from the same time last year. This trend follows a period which has seen take-up decline since July 2014, according to global property consultancy Knight Frank s new industrial property LOGIC report. But despite this relatively weak take-up, West Yorkshire is currently experiencing strong interest for industrial space.
As new developments are brought to market, take-up is likely to be back on the ascendancy in the next few months. There is a shortage of stock particularly for assets at the smaller end of the scale which has begun to have an impact on occupiers in search of good quality small space. This could prompt the speculative development of multi-let estates.
Nick Prescott, associate specialising in industrial property at the Leeds office of Knight Frank, commented: Although the first half of this year was characterised by fewer leasing transactions compared to the second half of 2014, market sentiment has remained robust. Limited activity has been largely attributed to the absence of good quality stock as opposed to a lack of occupier interest. Activity so far this year has been largely driven by major retailers, who have shown strong interest in large format units together with a number of foreign direct investment projects such as the FedEx and XPO Logistics acquisitions.
There are a number of units available in the second-hand market but in sub-prime locations. However, if the level of quality premises in prime locations continues to decline, then an opportunity to enter the second-hand market could emerge, as the next best alternative for potential occupiers. It comes as good news that there are schemes under development, which will help add much-needed new stock to the market.
This includes Mountpark Wakefield, a new 133,000 sq ft logistics warehouse which is expected to be completed by the end of this year and Logic Leeds, where Muse Developments are well advanced on site with the construction of an 80,000 sq ft facility. In the meantime, prime headline rents are expected to rise across the size spectrum, with deals in for the rest of 2015 expected to consist of fewer incentives and higher rental packages, added Mr Prescott. Meanwhile, in the West Yorkshire investment market, the industrial sector continued to see the price of assets harden, according to Knight Frank.
Multi-let industrial estates made up the majority of deals this year but the highest levels of investment were in the big box market. Notable deals included the 47m investment for a Tesco Distribution Centre in Goole ( 47.1m) and the Next Distribution Centre, Doncaster, which was acquired by LondonMetric for 29m. Both deals were completed in June 2015.
Louisa Rickard, associate of commercial research at Knight Frank explained: We are seeing investor demand remain strong for prime properties and investors benefiting from accelerated rental growth.
While prices have continued to harden, helped by the realistic prospect of rental growth, yields for single-let distribution and multi-let estates compressed further during H1 and we expect to see yield polarisation between prime and secondary assets continue to narrow.