Pre-Lets Dominates UK Industrial Leasing in Q3 2010

London, 20 October 2010 – Take-up of UK industrial property was dominated in the third quarter of 2010 (Q3) by the highest quarterly levels of pre-let activity recorded since Q4 2007, according to CB Richard Ellis (CBRE). Total take-up of pre-let logistics space stood at 2,034,000 sq ft in Q3 as compared to 503, 577 sq ft in Q3 2009.

Paul Farrow, Head of UK Industrial Agency, CBRE, said: “The high take-up levels recorded reflect continually improving sentiment amongst occupiers of UK logistics property and their drive to lease quality space to suit their long-terms needs. The biggest deals of the quarter highlight the return of pre-lets to the logistics sector.

“Occupiers have traditionally selected new space over second-hand accomodation - in fact, over the past 5 years, more than 60% of logistics space take-up has been new build space, with Design and Build accounting for 30% of total take-up. Based on the five year annual average, the South East and East Midlands regions respectively have 6 and 12 months of supply remaining, due to a lack of speculative development since Q3 2007. Requirements for new build space are getting bigger & increasingly bespoke, and together with low supply of existing space, this has lead to increased design and build activity. Significant deals in Q3 include B&Q occupancy of 820,000 sq ft at G Park Swindon, Tesco’s 825,000 sq ft at DIRFT & M&S taking 814,000 sq ft at East Midlands Distribution Centre.”

Total take-up of logistics property in Q3 reached 5.6 million sq ft, bringing the take-up for the year to 19.2 million sq ft. Despite recording lower levels than in Q2, total Q3 take-up levels surpassed total take-up of UK industrial property in 2009 (13.5 million sq ft) and in 2008 (16.2 million sq ft).

At 5,256,003 sq ft, the East Midlands was the most popular area for take-up in 2010, followed by the South East at 3, 743, 368 sq ft and the North East at 2, 822, 910 sq ft.

Ian Kissane, Director of UK Research, CBRE, said: “At the end of Q3, supply in the UK logistics market stood at 46.7 million sq ft, 12% down on Q3 2009. 67% of space available remains predominantly second hand. This mix compares to the position at the end of December 2007, when second hand space accounted for 25% of space available.”

“Speculative development of logistics space of over 100, 000 sq. ft. is scarce across the UK but a very inspired few have bought or are starting to buy land and pre-letting it. Properties on the market during Q3 will be central to the continued growth of pre-let activity - the 748, 000 sq ft site at Thornton Road, Bradford and Leeds’ 666, 000 sq ft Sherburn Distribution Park are among them,” commented Farrow.

Overall, the decline of logistics space has been marked in the South-East where the total logistics availability fell over the course of the last 12 months by 27% to 7,537,500 sq ft. There have been smaller single digit declines in most other UK regions.

“The region that continues to command the highest rent for logistics is the South East. Rents here currently sit at £11.50, down from a peak of £13.25 in 2008. The other UK regions registered rents of between £4.50 and £6.00. This rental level has remained fairly constant over the past decade. However, with new supply shortages evident, and demand growing, particularly in the pre-let market, it can be anticipated that some further rental growth may occur during the remaining quarter of the year,” concluded Kissane.

Download the Industrial Q3 Slidebank here
Download the Industrial Q3 Slidebank here