South Coast Industrial Market Pulse Q2 2019

H1 2019 for the South Coast Industrial occupational market has upheld its reputation as a desirable strategic commercial hub, with strong performance indicators including; positive take up levels, maintained stock levels and increased numbers of enquiries. In a market with political uncertainty we are encouraged by the unfaltering market forces that are being shown by developers and occupiers alike. The investment market as started to show some signs of caution amongst investors however assets with good fundamentals remain attractive.

Availability Remains Static

Availability of stock on the South Coast has remained relatively static this quarter, with only a marginal increase of 13,342 sq ft, when compared with the same period last quarter, however the year on year figures are still on the rise with further new developments under construction.

New schemes which have been brought to the market this quarter include Phase 1 Proxima Park, Waterlooville comprising 103,910 sq ft and Unit 2 Hermitage Park, Havant totalling 32,500 sq ft

There have been a number of enquiries in Q2 with various interested parties for pre-lets at Dunsbury Park. Merlin Park, owned by BA Pension Fund and developed by Canmoor has only 2 units left out of 7 units on the scheme.

Q2 saw Fareham Borough council obtain planning consent for a new speculative scheme comprising 3 industrial units totalling 50,000sqft. Planning consent has also been granted for 3 units at Logistics City, Whitley to be constructed speculatively by Kier. This scheme comprises 3 industrial units totalling 58,664sqft.

The vital statistics have been summarised below:

	Q2 2019 (sq ft)	Q1 2019 (sq ft)	% change	% change Year on Year
Total stock	2,941,349	2,928,007	0.46	12.41
Prime stock	883,284	870,989	1.41	-22.4
Secondary stock	2,058,065	2,057,018	0.05	39.2

Take Up Positive Trend Continues

As predicted 2019 has continued the positive trend, with take up levels remaining relatively consistent with Q1 and significantly improved when compared with the same period last year*.

Availability and take up levels continue to show the resilience and strength of the south coast market. Prime take-up saw an increase of 637.67% (119,742 sq ft) when compared to the same period last year, demonstrating the continued demand for prime stock, addressing the needs of the modern occupier seeking greater efficiency, reduced upkeep and lower operational costs.

This also continues to have a positive effect on the industrial market as a whole, freeing up the secondary stock, which has also witnessed an increase in take up levels of 28.75% (64,067 sq ft) when compared to Q2 2018.

*Q2 2018 was documented as a particularly quiet quarter with a significant number of deals under offer awaiting completion.

The vital statistics have been summarised below:

	Q2 2019 (sq ft)	Q1 2019 (sq ft)	% change	% change Year on Year
Total take up	425,464	441,695	-3.67	76.06
Prime take up	138,520	162,035	-14.51	637.67
Secondary take up	286,944	279,660	2.60	28.75

Enquiries Remain Consistent

These positive market indicators have also been evident in the number of enquiries received. There has been a small increase in overall enquiry levels of 8% (an additional 11 enquiries) when compared to last quarter and 2%, when compared to the same period last year. This upward trend has continued for this quarter since 2016 (an additional 19 enquiries).

The majority of enquiries above 30,000 sq ft tend to be within the logistic/last mile delivery companies who are requiring supplementary accommodation to fulfil contract led requirements. Interestingly there are also enquiries from manufacturers, who are looking to take advantage of new builds in relocating to more modern and aesthetically pleasing industrial buildings.

Significant Occupational Transactions

Property	Size	Landlord/Vendor	Tenant	Terms	Rent / Price (per sq ft)
Optima 125, Hounsdown Business Park, Totton	125,260 sq ft	TH Real Estates	Amazon UK Services Limited	10 year lease	£8.50
Units 7,8 & 9 Test Valley Business Park, Southampton	48,936 sq ft	Draper Tools Limited	DSV Air & Sea Limited	3 year lease	£9.00
Unit 3 Compton Way, Southampton	40,311 sq ft	Threadneedle UK Property Authorised Investment	Trinart Limited	Freehold Sale	£83.10
Unit 200 Fareham Reach, Gosport	27,684 sq ft	Britel Fund Trustees Limited	Rainbow Designs Limited	10 year lease	£6.75
Unit 210 Fareham Reach, Gosport	16,811 sq ft	Britel Fund Trustees Limited	CPG Logistics Limited	10 year lease	£6.75
Unit 2 Merlin Park, Portsmouth	9,299 sq ft	Canmoor Developments Limited	MGS Laboratories Limited	11 year lease	£10.00

Prime rents continue to Marginally Increase

Rents remain relatively stable with a slight shift seen in prime rents in both Southampton and Portsmouth market, increasing in all size ranges. In the sub 5,000 sq ft market this is due to a lack of quality new build units and in the larger size sectors due to occupiers being prepared to pay more per sq ft for a new build with all its benefits as opposed to good quality secondary refurbishments.

Under 5,000 sq ft	Prime capital value per sq ft	Prime headline rent per sq ft	Secondary capital value per sq ft	Secondary headline rent per sq ft
Portsmouth and Havant	£135 - £145	£10.00	£90 - £100	£8.50
Southampton and Eastleigh	£150-£160	00.2£1	£90-£100	00£10.
Bournemouth and Poole	£140-£150	£9.50	£95-£105	£8.50

5,000 – 20,000 sq ft	Prime capital value per sq ft	Prime headline rent per sq ft	Secondary capital value per sq ft	Secondary headline rent per sq ft
Portsmouth and Havant	£125 - £135	£9.50	£70 - £80	£8
Southampton and Eastleigh	£130-£140	£9.50	£80-£95	£9.00
Bournemouth and Poole	£115-£120	£8.50	£85-£95	£7.50

Over 20,000 sq ft	Prime capital value per sq ft	Prime headline rent per sq ft	Secondary capital value per sq ft	Secondary headline rent per sq ft
Portsmouth and Havant	£110 - £130	£9.00	£70 - £80	£7.75
Southampton and Eastleigh	£115-£140	£10.00	£70-£85	£8.75
Bournemouth and Poole	£110-£120	£8.25	£65-£75	£7.25

The marginal rental gap between prime and secondary stock echoes the overall south coast market sentiment; that there is strong demand in this location and occupiers are willing to pay good rents for units in the right location, with sound building fundamentals.

Investment Market Review

Despite a subdued first quarter, Q2 saw transactional volume for ‘South Coast industrial’ hit circa. £100m. The headline transactions included LaSalle (Greater Manchester Pension Fund) acquiring South Central, Nursling (part of the Sovereign Portfolio) and M&G Real Estate purchasing Mountpark Southampton (again, this being part of a larger Portfolio sale).

Other activity of note was Columbia Threadneedle’s purchase of CCF in Hedge End for £4,050,000 (5.74% NIY) a level notably ahead of the £3,450,000 (6.75% NIY) quoting.

‘New to market’ included Units 10-15 Petersfield Business Park; a freehold multi-let trade counter estate with an AWULT of 8.5 years. The average rent reflected £7.62 psf. At a quoting level of £3,100,000 (6.17% NIY) we would be very surprised to not see this number comfortably surpassed. Finally, Cording commenced marketing of Lineside Industrial Estate, a freehold 28 unit scheme with an AWULT of 5.2 years. The rent reflected a low average of £5.43 psf with a quoting price standing at £19,170,000 (5.50% NIY).

Our message along the South Coast remains consistent; with opportunities in this geographic region being far and few between and investors attracted to the strong market dynamics, the outlook remains positive. Average yields for the wider South East have been driven down to 4.30% on the back of strong rental growth expectations. Prime Yields for South Coast Industrial stands at 4.50%.