The amount of industrial space acquired in 2010 increased by 18.5% on the previous year to 101.2m sq ft – reaching a five year high.

These findings come from our latest research report, National Industrial and Distribution Report 2011.

Lack of grade A forces occupiers to acquire second-hand stock

Increased demand was focussed on prime space yet, due to a lack of speculative development in previous years, grade A space was limited and quickly absorbed. Consequently, quality second-hand space accounted for 80% of take-up in 2010.

Michael Alderton, Director of National Industrial and Logistics, commented: “As we progress through 2011 it is unlikely that sufficient prime space will be available to meet the increased demand in the market. Developers have already responded to this by becoming active in strategic land buying throughout the year, with an expected return to speculative development in late 2011/early 2012, where demand is strong and space shortage most acute.”

Locations expected to suffer from shortage

Key areas where the shortage of supply is likely to be greatest include the East Midlands, Eastern Region, Greater London and the South East.

Distribution sector boosted by retail sector

The research found that take-up in the distribution sector increased by 46% on the previous year for units in excess of 100,000 sq ft, to 30.4m sq ft. Demand emanated mainly from the retail arena but was also boosted by demand from the manufacturing and waste sectors. 

Obsolete stock returns to market

Despite demand reaching a five year high, availability rose to 372m sq ft, an increase of 17% on 2009. This figure gives a distorted impression, as much of the stock returning to the market is obsolete, lower quality and unwanted stock.

Lease incentives reducing for prime space

Focusing on rental values Michael commented: “We expect that rental values for lower quality buildings will decline further this year, before stabilising in 2012. The strongest rental ‘bounce’ will be in the distribution sector in units over 100,000 sq ft, where there are acute shortages. We have already seen incentives on lease agreements reducing when there is limited space in prime areas.”

Key 2010 regional findings:

• Highest increase in take-up (45%) was in the Eastern Region

• Strongest take-up was recorded in the West Midlands

• Yorkshire & the Humber take-up rose 31%

• The North West witnessed the highest take-up of distribution premises (100,000 sq ft+)

• Greater London and the Eastern Region were the only areas that saw total availability decrease

• Take-up in Greater London increased by 16% - the highest level of take-up since 2006