During 2017 prime industrial rents in Reading reached a record breaking high of over £11 per square foot. Rents improved quarter on quarter, largely due to the good level of demand and diminishing supply. Quoting rents for major lettings were set between £11.25 per sq ft and £11.75 per sq ft and we expect industrial rents in 2018 to reach £12 per sq ft plus, particularly for smaller and trade counter units where in some instances rents are being quoted in excess of £14 per sq ft.
In addition to improved rental growth, the strength in demand resulted in incentives reducing on good quality stock to an average of less than one month per year term certain with landlords also able to hold out for longer leases with a 10-year term certain becoming ‘market norm’.
Total supply available at the end of 2017 fell by 13.2% from the previous year to 682,199 sq ft and contrary to 2016 the number of available units fell by a third from 85 to 56.
Land is in short supply and there are only a few new units currently planned for 2018. These include Kier’s development at Reading Trade City which is currently onsite and will provide 12 good quality trade counter units providing available floor areas between 3,300- 11,000 sq ft. Aberdeen Standard may speculatively develop Plot C at Suttons Business Park which will provide a new good quality unit of 31,150 sq ft and McKay Securities may build out its recently secured planning consent for 135,000 sq ft at Theale Logistics Park.
Despite this, even if all of the above are developed in 2018 it is unlikely that they will be available until early 2019.
It is expected that demand in this sector is only going to increase over the next 12 months, largely influenced by the increasing pressure on ‘e-tailers’ and retailers to provide faster, more efficient delivery options to customers, which is seen as a key factor in ensuring the longevity of these companies’ survival.
As the pressure increases on these major ‘e-tail’ and retail companies to improve their supply chains efficiency, it is likely to increase the demand for distribution units. In addition, the impact of Brexit is likely to influence the level of demand in this sector. Regardless of whether we have a soft or a hard Brexit, the simple change from one form of international trading process to another (whatever this maybe) will cause delays at customs as the new systems come into effect and therefore ‘e-tailers’ and retailers are preparing for this by planning to store more goods in the UK rather than overseas.
Manufacturing will continue to play an important role in the sector, particularly in light of the Government’s support in this direction through the Industrial Strategy White Paper released in November.
As a result, we expect rents to rise, albeit not at the same rate as 2016/2017. The appetite to speculatively develop will increase, but the opportunities to do so in the short to medium term will be limited by the availability of land.