Annual review: Midlands industrial market

– The final in a series of three commentaries on the Midlands commercial property market, providing in-depth analysis and insights into 2016 and outlook for 2017.

Where, in Birmingham city centre’s market for offices, we saw the impact of Brexit in the second half of 2016, elsewhere in the commercial property market it was a different story. The current insatiable demand for property across the Midlands industrial market saw transactions increase and even the sharpening of yields. 

“2016 was yet another great year for the Midlands industrial market – with landmark transactions and major, new development announcements within the 12-month period.

“Whilst we did see sharpening of yields throughout 2016, in spite of the referendum, yields have now reached a stage where they are perhaps sharper than they realistically should be. As a result, it would be prudent to expect those yields at the top of the market to soften, if only slightly, bringing them in line with true market values.

“That being said, demand continues to significantly outstrip supply – and demand only continues to increase. 2017 will see a great rate of take-up, for a market that continues to be very healthy.” – Kenny Allan, Director of KWB Industrial, pictured right.

Industrial marches on

Despite constant efforts by the market to build as much Midlands industrial and warehousing stock as possible, supply still falls short of the current insatiable demand.

There are as many pre-lets occurring as there are lettings of new buildings. Whilst some occupiers require a specific type of building that would preclude them from taking an existing building, the majority of transactions have had to pursue the design and build route because the type and grade of available stock is not sufficient for their purposes.

Key design and build transactions

• Screwfix – 562,000 sq ft, Prologis Park, Fradley
• Sainsbury’s – 325,000 sq ft, Prologis Park, Northampton
• Palletforce – 260,000 sq ft, Burton-on-Trent
• Amethyst – 210,000 sq ft, Wellesbourne Distribution Park
• Dwell – 151,000 sq ft, Prologis Park, Milton Keynes
• Birlea Furniture – 74,000 sq ft at East Midlands Distribution Centre, Castle Donington

Smaller stock is thin on the ground

On the smaller side of the market, in the multi-let industrial estates, the only real availability of buildings is coming from those occupiers who were acquiring industrial space c. 2011 that now face lease renewals with rent increases of 30-50%.

2017 outlook for industrial space

As the recession caused the time lag in development, it is likely that it will take up to a further 3 years for the supply to come back. As such, we anticipate the next 12 months will see a continuation in rate of take-up, and with that, continued rental increase, as well as a reduction in incentives.

The above is an excerpt from the full analysis, which can be found here.

For more information on Midlands industrial space, please contact Kenny Allan on 0121 212 5996 or email kallan@kwboffice.com or download the KWB Annual Office and Industrial Market Review 2016 – Outlook 2017.