Shortage of space to push up industrial unit rents

Commercial property agent Dunlop Heywood, which carried out the research, forecast rents in the industrial market to grow by an average of 1.2 per cent per year over the next five years, driven by the tight supply of good quality space and the release of pent-up demand.

It said the balance of power was already starting to swing back to the landlord in certain regions where incentives for occupiers were reducing.

The average industrial rent in Yorkshire for prime space currently stands at £5 per sq ft.

Rent in the region remained stable between 2011 and 2012. Leeds and Doncaster saw rent stay at £5.75 and £4.50 per sq ft respectively.

In Sheffield, rent rose from £5 to £6 per sq ft and in Wakefield it went from £4.75 per sq ft to £5 per sq ft.

In Hull, it fell from £4.75 to £4.25.

Alistair Russell, director of investment at Dunlop Heywood in Leeds, said: “Generally, we are seeing a more positive economic outlook across the industrial sector and demand is expected to increase with improving economic activity.”

The overall increase in prime rents across 59 locations in the UK slowed to 0.6 per cent in 2012, compared to 1.3 per cent in the previous year, the report said. Six of 11 regional markets are now averaging growth, with a further three indicating that rents have remained stable.

Mr Russell said: “There are still regional variations on rent and availability but with virtually no new development taking place in the past five years, this has added to the dearth of availability on good industrial stock.

“As a result, we forecast that there will be some rental growth and there is also evidence of rental incentives reducing and lease lengths increasing.

“For some businesses, design and build may be the only option resulting in delay and upward pressure on rents reflecting the cost to build.”

In February this year, there was 744,000 sq ft of industrial floor space speculatively under construction nationally, up from 558,000 sq ft in November 2012 but down considerably on the peak of 15.5m sq ft recorded in mid-2007.

Last week, Leeds City Council said it was open to proposals from developers for joint ventures to build new factories in the region.

The council said it was looking at “sharing some of the risk and some of the reward” to help get schemes off the ground to deal with the shortage of new space suitable for advanced production.

The Government recently introduced an exemption of empty rates on all newly built commercial property completed between October 2013 and September 2016 for the first 18 months, which agents hope will kick-start speculative development.

Total take up for the first half of 2013 was approximately 3.9m sq ft, according to figures by Lambert Smith Hampton.

Despite a good supply of large warehouses over 100,000 sq ft in Yorkshire, the main shortage is in the sought after smaller sheds market.

Mr Russell said: “Nationally, available supply continued to fall last year and at the end of 2012, total industrial and logistics availability was 1.6 per cent lower compared with three months earlier and 2.3 per cent lower than September 2011.

“There is still a shortage of Grade A supply, with a sizeable share of available space considered obsolete.”