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News Release

London

Substantial increase in available industrial space across Western Corridor in first half of 2009

Even though speculative development has all but ceased in region according to Jones Lang LaSalle’s latest research


London, 19th October 2009 – Around one million sq ft of industrial/warehouse space was added to the supply in West London, and a smaller volume in the Thames Valley, in the first half of the year according to Jones Lang LaSalle’s Western Corridor Industrial/Warehouse Market Report: Autumn 2009.  As a result vacancy rates have climbed to 8.3% in West London, its highest level for at least 15 years, and 9% in the Thames Valley.

Bridget Outtrim, Director in Jones Lang LaSalle’s National Industrial & Logistics team, said: “The increase in supply which has been steadily creeping upwards since 2002, accelerated in H1 2009 as companies brought second hand stock to the market; both West London and Thames Valley saw similar increases of around 19%. Even though speculative development declined in the region it’s inevitable that total supply will continue to rise as businesses consolidate.”

The development pipeline in the region has all but dried up with Jones Lang LaSalle reporting the only substantial development still under construction being Canmoor’s two schemes in Isleworth and Thunder and Lightening in Park Royal.

Bridget continued: “Once this speculative development has been completed, grade A supply will diminish relatively quickly and vacancy will be increasingly concentrated in poorer quality stock. We do not expect there to be any speculative development until 2011, which will exacerbate a growing shortage of grade A space.”

“Although we stand by our view that ‘most property is reasonably priced in this market’ the pressure on landlords to maintain income streams has led to reductions in headline rents in some locations and a widespread increase in incentive packages,” added Bridget.

According to Jones Lang LaSalle’s research only in Heathrow, Park Royal and Greenford had H2 2008 levels been maintained and even here there have been reductions in effective rents.  In the Thames Valley, Slough commanded the highest headline rents at £12.00 per sq ft. The rent free period generally available on a five year term has risen to nine months in Park Royal and Greenford and 12 months in the rest of the market.  On grade B stock landlords are prepared to offer up to 18 months.  Jones Lang LaSalle anticipates that headline rents will fall further, albeit by a relatively small margin as owners concentrate on income generation.

Bridget added: “Looking ahead, as the supply of grade A space reduces in the region, rental decline will be arrested, probably in the middle of 2010 and ultimately this will stimulate a resurgence of rental growth for prime space.  The gap between grade A and grade B space will widen, however, with headline rents continuing to fall during 2010 for poorer space.”

Bridget concluded: “Over the next two years, demand from businesses engaged in recycling and waste disposal will crystallise and the distribution sector will, as a whole, continue to restructure and consolidate. We repeatedly highlight the need for new product – not substantially different but differentiated in its packaging and branding.  We expect more high value uses in warehouses which will underlie a demand for more office content and a high quality of environment.”
 

Notes to Editors:
Key H1 2009 market highlights as follows:

West London:

- 1.23m sq ft was let in H1 2009 which compares with 1.1 million sq ft in H2 2008 and a whole year total for 2008 of 2 million sq ft.  Most of the leasing activity focused on the Heathrow market.

- Over 6.6 million sq ft on the market to let at the end of June 2009 – an increase of 18%.

- Vacancy rates stands at 8.3%, its highest level for at least 15 years, although it has been climbing gradually since 2000 when vacancy dipped to just over 3%.

- 261,000 sq ft is under construction but all of this is due to complete before the end of 2009.

- Between them logistics and retail accounted for almost three quarters of the space let in H1 2009.

Thames Valley
- 484,000 sq ft was let in H1 2009 which compares with 948,000 sq ft in H2 2008 and a whole year total for 2008 of 1.4 million sq ft.
 
- Almost 5.9 million sq ft on the market to let at the end of June 2009 – an increase of 19%.

- Vacancy rate stands at 9%, its highest level for at least 15 years, although is has been climbing gradually since 2000 when vacancy dipped to below 3%.

- No significant development is under construction nor was any substantial development completed in the first half of the year.

- Although the total number of lettings was small in H1 2009, it comprised a relatively broad cross section of occupier types.