Partner Article

Enquiry levels dip in second quarter

The relatively good performance of 2015 was carried over into the first quarter of 2016, however there is no that doubt enquiry levels have dropped significantly in the second quarter of the year and this in part can probably be attributed to the uncertainty pre and post Brexit says Simon Haggie, partner, industrial agency, Knight Frank in its latest market report.

Take-up of units over 50,000 sq ft across the region totalled 324,000 sq ft in H1 2016, compared with 1.08m sq ft in H2 2015, although that figure was boosted by Vantec’s new 440,000 sq.ft warehouse.

The region has been adversely affected by the severe drop in oil prices and the consequent downturn in the North Sea oil industry which has detrimental to a considerable number of engineering businesses. The most noteworthy casualty has been the OGN Group which has recently closed its main facility in Wallsend which extends in total to 461,000 sq ft of buildings on a site of 75 acres.

Demand from other areas of manufacturing and warehousing has remained fairly stable.

Currently demand remains for modern units, which are now available in very limited numbers and consequently there is now a significant disparity between rental and capital values for modern and older second hand space. This is particularly highlighted by the letting that UK Land has agreed on its brand new 11,614 sq.ft unit 12 Queens Court, Team Valley. This has established a record rent level of £8.10 sq.ft for the estate. In comparison rents on modern second hand space are typically between £5.50 - £6.50 sq.ft.

The success of this letting has encouraged UK Land to commence a larger phase of units on Team Valley which will complete in March 2017. Dukesway Central as it is known will provide three units ranging from 12,183 sq ft to 26,694 sq ft. Quoting rents start at £7.65 sq ft. UK Land is also currently seeking planning consent for two 35,000 sq ft units on a prominent Kingsway site on Team Valley, but it is unlikely that construction will start this year unless there is a pre-let.

The investment market has cooled somewhat but there is very little industrial stock on the market of a scale that will attract major institutions, although there is product for the smaller property companies. Yields still seem to be holding up and the North East remains attractive to investors with a general perception that rental levels are at historic lows so there is some anticipation of growth.

Overall a quiet summer is anticipated but once the markets have settled down Simon Haggie expects to see business carry on as before.

The vote to leave the EU may have consequences for the future of the Nissan car plant. In the short term Nissan has too much invested in the Washington plant and it remains the most efficient in Europe, but in the medium to longer term the effect of export duties may well undermine profitability as around 85% of the cars are manufactured for export.

With no sign of recovery in oil prices, this market sector will continue be affected for some time and this will have an effect on the regional engineering industries and in particular the former shipbuilding areas surrounding the River Tyne.

ENDS

This was posted in Bdaily's Members' News section by Knight Frank .