The East Midlands industrial and logistics market is being severely hampered by a lack of supply of good quality units and there is little sign of any return to speculative development.

In LSH’s East Midlands Industrial & Logistics H1 Market Review, Geoff Gibson, Head of our Leicester office, said: "With no speculative development on the horizon, and continued occupier demand for prime industrial space, the distinct lack of supply continues to impact on the East Midlands’ industrial and logistics market. Occupiers are increasingly moving towards build to suit solutions, with numerous opportunities on offer in the region.”

The region’s key sites are all promoting build to suit accommodation with a 6 to 12 month turnaround, including EMDC, Derby Commercial Park, Nottingham 26, Optimus Point, Castlewood, and Markham Vale, all providing easy access to the M1.

Power balance shifts to landlords

The past year has seen rents across most size sectors and locations stabilize, although significant rental growth remains to be seen. Higher rents are inevitably being achieved on better quality buildings, with proximity to the motorway network, good eaves height, large yard areas and loading facilities being key influencers. Incentives have hardened in favour of landlords, from on average 12 months’ rent free on a five year term, to six months.

Significant transactions this year include Clipper Logistics taking 303,000 sq ft at The Duke, Burton-on-Trent, and William West committing to 164,000 sq ft at Network 25, Sandiacre.

Following completion of the Co-op’s 455,000 sq ft building at Castlewood (M1 J28), UDG will be taking a 250,000 sq ft building on the same estate. DPD are purchasing 330,000 sq ft at Hinckley Commercial Park (J1 M69/A5).

Distinct lack of grade A supply

Geoff said: “Throughout the region there is an acute shortage of grade A supply across all size sectors. There are few quality industrial buildings above 50,000 sq ft, the larger of which – Langley 25 – has remained unoccupied for more than five years and is now clinging on to its grade A status.

“We have seen the most activity on multi-let estates up to 10,000 sq ft. Statistics will show plenty of availability, but the majority is lower quality stock. The level of good quality supply in this sector is now declining.”

The market could be given a boost by the Government’s bid to encourage speculative development by introducing an 18-month rates exemption for all newly built commercial property completed between October 2013 and September 2016. With the end of the East Midlands Development Agency, occupiers are now taking advantage of funding and incentives from the Regional Growth Fund and from Enterprise Zone status. The extension of these schemes could improve demand.

What does the future have in store?

The future will see no immediate return to widespread speculative development, but it is likely to be seen on a smaller scale.

Geoff adds: “We will see a continued churn of existing second hand stock as occupiers are forced to compromise on quality, and some occupiers will be forced to look outside the region for wider choice due to the limited grade A supply.

“The numerous build to suit options available will become a favoured solution, fuelling industrial take-up. Rents will increase, potentially doubling those equivalent rents seen in 2008/9 when ‘softer’ deals were done to cover voids. Prices on existing stock will decline once speculative development increases, as stock currently considered to be grade A will become grade B."