SME industrial space has been the bedrock of Greater Birmingham’s economy for a century and more are struggling desperately to find new space, according to one of the region’s leading observers of the property scene.
Kenny Allan is Director of Birmingham-based KWB Industrial, and has more than 20 years of experience in the Midlands industrial, logistics and warehousing sectors.
However, he admits there’s never been a time when the supply of industrial units below 100,000 sq ft has been so tight, and fears that both growing SMEs and the local economy will suffer as a consequence.
“Many SMEs are based on multi-let business estates, which you see throughout Birmingham and the Black Country, but occupancy rates have reached record highs and there is absolutely no sign of new space coming forward,” says Kenny.
“For the last ten years or so, it wasn’t regarded as a major issue by landlords or investors because, although rents were effectively static, yields came in, so they felt better off.
“Now though, we’re seeing rents for SME industrial space in good condition up to around £9 per sq ft, compared with the £5 or £6 per sq ft that we’ve seen for so long, because the availability of stock has almost dried up, and real rental growth has replaced yield compression.”
Kenny says the supply of such units has fallen dramatically for several reasons, not least because the pending arrival of HS2 has taken out both stock and development land.
“It’s had a double impact, because the amount of available space has diminished, and there’s a reduced amount of brownfield land on which new units could be brought forward,” he says.
“SMEs looking for space, or local firms looking to relocate as they’re in a growth sector, have traditionally looked at such locations such as the Gun Quarter and around Hockley in Birmingham.
“However, these areas are now seeing only residential high-rise buildings going up to meet the ever-growing demand for student accommodation and urban living, or large chunks of space for logistics and warehousing uses.
“The economic model for developers and investors to target those sectors is very strong, so instead of seeing a new supply of small industrial units in those areas, we’re just seeing ‘beds and sheds’.”
Kenny says the impact is already evident in the decision-making of owners and management teams at industrial SMEs.
“We’re seeing some staying put in space that doesn’t meet their requirements for growth, which then has a domino effect on occupiers of smaller units. If, for example, they’re in a 3,000 sq ft unit – but really want 5,000 or 6,000 sq ft, they’re stuck, because the firm in the larger space can’t find the unit it wants. If they’re footloose, they’ll look elsewhere,” he says.
“Either way, the dearth of supply will impact both the regional economy, in terms of lost employment opportunities, and individual firms who are trapped within inefficient space. If no new suitable units come forward, what little supply remains now simply won’t exist in a few months.”