Haslams’ Industrial Property Snapshot
After a storming 2017 have we now reached the height of the industrial property market? Neil Seager, partner at Haslams Chartered Surveyors provides a rundown of Reading’s industrial property market in the first quarter of 2018.
The market is constrained, particularly by the lack of availability of decent quality units. However, thankfully there are now two new developments which have just completed. Aberdeen Standard has just finished Unit 27 Suttons Business Park which comprises 15,000 sq ft adjacent to the new Costa and Aldi.
We reported in our yearly report that prime industrial rents had broken the £11 per sq ft mark. We expect this unit to break the £12 per sq ft barrier as it is one of very few of this size in the market at the current time. It also has the benefit of being located close to the front of the park in a quasi-retail environment. In addition, Trade City Reading at Junction 11 has recently completed. This provides 12 trade units from 3,000 sq ft to 6,000 sq ft adjacent to Reading Gateway. Quoting rent is £15 per sq ft which is a new benchmark for the trade market in the town. Further supply will come to market in 9-12 months.
McKay has commenced demolition at 135 Theale Logistics Park and will shortly start developing a single high-bay warehouse of 135,000 sq ft.
Supply of industrial space on the quarter day stood at just over 1% higher than at the start of the year with take up comprising approximately 82,000 sq ft. If repeated for the remainder of the year, this year’s take up will predictably be down due to constrained supply. Rental tone remains on an upward trajectory with average rent-free periods static.
1st quarter 2018
The investment headline last year was the record forward funding of the DHL pre-let at Island Road, Reading for a net initial yield of 4.25%. This year the adjacent scheme comprising 250,000 sq ft across three units has been sold in a portfolio to La Salle Investment Management for what is understood to be a net initial yield of approximately 4.5%. Industrial property yields in the South East have improved again and – because it contained an element of vacancy – the transaction at Island Road supports this trend. We believe that had a fully let new industrial unit or estate be available in the town it would sell for a yield below 4%. As a result, industrial land values now stand at historic high values and we reiterate that in parts of the Thames Valley, they now outstrip residential land values.
The freehold market remains strong but with few units available to purchase occupiers are having to bide their time. If yields do start to move out then we expect developers to switch their attention to the owner-occupier market and take advantage of the pent-up demand.
The industrial market remains closely linked to retail and the recent negative press regarding some retailers is a slight concern. However, our view is that the retail market was always going to see some natural wastage as consumer behaviour evolves. The industrial sector continues to try and keep up with the changes in how the consumer shops. Gazeley, for instance, has just announced it will speculatively develop the UK’s first three-storey logistics facility at London Docklands. The warehouse will comprise some 426,000 sq ft of space over three levels allowing for either multiple or single customer occupancy. The building will be used as a ‘last mile’ logistics hub for London and surrounding areas, targeting e-commerce, distribution and logistics customers.
Developments such as this demonstrate that the industrial property market – in order to keep up with the occupier demand particularly in key locations – has to be innovative and flexible. Maybe on this basis even Reading will have a three storey warehouse some point.