Partner Article

Lack of Supply holding back region

“Take up of units over 50,000 sq.ft totalled 795,885 sq.ft in second half of 2016, more than double the level of take-up in first half, bringing the total for the whole of 2016 to 1.1m sq.ft, compared to 2.2m sq.ft in 2015,” says Simon Haggie, partner, industrial agency, Knight Frank.

“Indeed the position really only rallied in December when two transactions totalling 428,870 sq.ft completed. Both were old industrial stock, comprising the former 271,527 sq.ft Filtrona premises on the Bede Industrial Estate, Jarrow and the 157,343 sq.ft Jus Rol premises in Berwick upon Tweed.”

Mr Haggie continues: “The supply of buildings over 50,000 sq.ft in the North East region is largely made up of ageing stock with only 14% of the total figure of 3.4m sq.ft less than 25 years old. As a result there is a shortage of supply of large modern buildings and only one unit over 50,000 sq ft planned to be built during 2017. This is UK Land Estate’s Intersect 19 development where a building of 57,425 sq.ft has just started on site.

“The lack of supply is holding back the region but given the current level of rents it is simply not viable for developers to build unless rents improve - even with some of the highest yields seen on investment sales for modern sheds.”

There are however encouraging signs that rents on new builds are moving up with the letting of units on Team Valley agreed at £8.10 per sq ft a 11,600 sq.ft unit and £7.45 per sq.ft on a larger unit of 26,834 sq ft. “The latter one has just gone under offer. This offers some hope to developers that these rental levels can be achieved elsewhere in the region and that will represent a viable figure,” adds Mr Haggie.

“Encouragingly two companies with a presence in the region are also seeking to build or have built large warehouses of 200,000 sq.ft and 130,000 sq.ft respectively. Both are in advanced negotiations with land owners/developers. In the past these companies would have taken existing standing stock but it is a reflection on the limited amount of modern space available that they are now looking at purpose builds.

As for 2017 Mr Haggie is optimistic about the outlook for the sector. “The Government’s reassurances to Nissan post Brexit regarding duties has secured two new models from the parent company which has boosted moral and confidence both locally within the workforce and regionally amongst suppliers. Casualties are still occurring in the oil and gas sector although that is also offering some hope of recovery as oil prices rise.”

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