Jones Lang LaSalle publishes UK Industrial market highlights for first half of 2010

Occupier demand for large industrial and logistics units (>100,000 sq ft) made a strong recovery during the first half of 2010 (H1 2010) totalling 10.2 million sq ft, a 67% increase on the previous half year according to figures released by Jones Lang LaSalle today.

Compared to the same period last year, take-up volumes increased in many UK regions during the first six months of 2010, with the strongest occupier activity recorded in the Midlands which accounted for 50% of the total figure. In comparison with 2009 volumes, take-up almost tripled in the East Midlands and was 13% higher in the West Midlands. H1 2010 take-up was more than double the whole of 2009 volumes in Greater London and Yorkshire, with declines seen in the North East, South East, South West and Wales.

Richard Evans, joint head of National Industrial and Logistics at Jones Lang LaSalle, said: “Total half year take-up is now already higher than whole of 2009, and has yet again been predominantly driven by retailers, accounting for 40% of the overall figure.”

Richard Evans continued: “We expect that occupier demand will level out in the second half of this year as concerns surrounding UK economic growth prospects continue. Nevertheless, total 2010 industrial and logistics take-up for large units could increase around 60% on the previous year.”

The improving occupier market has driven down supply of large modern units in the first half of 2010 meaning occupiers are now facing a limited choice in most traded markets across the UK. With speculative development still on hold, design-build take-up continued to increase throughout H1 2010, up from 10% in Q1 (430,000 sq ft) to 30% in Q2 (1.7 million sq ft).

According to Jones Lang LaSalle’s research, industrial development activity started to recover for the first time since the beginning of 2008. As at July 2010, almost 5.6 million sq ft of new floor-space was under construction, twice as much as at the end of 2009. Pipeline volumes however continue to be subdued and all new developments started since January are design-build.

Cameron Mitchell, director and joint head of National Industrial and Logistics at Jones Lang LaSalle added: “With a number of large size design-build occupier transactions under negotiation more development starts are expected during the second half of this year. Nevertheless, whilst total completion volumes by year end are anticipated to be substantially higher than in 2009, we anticipate they will remain below the long term average.”

UK prime distribution rents stabilised in Q2 2010 across all markets, unchanged for the second consecutive quarter. However, in many markets rental levels have significantly decreased since the last peak recorded in Q3 2008. Occupier conditions still favour tenants albeit incentives have now reduced compared with the same period last year.

Cameron Mitchell concluded: “Going forward, a strengthening in rental levels is anticipated as improved occupier activity will continue to drive down modern supply levels and lease conditions for design-build take-up will be tighter then for existing/speculative units.”

Investment volumes for industrial units reached £1.2 billion, slightly lower than H2 2009 (£1.3 billion). In all, industrial investment volumes increased more than 20% on H1 2009 and overall investment activity is expected to be higher at year end compared to 2009.

www.joneslanglasalle.co.uk