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Western Corridor Industrial take-up bucks trend in Second Half of 2008 reports Jones Lang LaSalle

Although Heathrow retained its role as market leader by instigating a fall in rental values

London, 19 March 2009 – The Western Corridor industrial property market appears to have bucked every trend in the latter half of 2008 by producing an increase in take-up, with lettings, which had fallen by 34% in H1 2008, rising by 60% in H2 2008 to 2.08 million sq ft according to Jones Lang LaSalle’s Spring 2009 Western Corridor Industrial/Warehouse Market Report. However for the first time in six years, there was evidence of declining values in the Heathrow market as landlords adjusted asking rents to reflect new market conditions.

Jones Lang LaSalle’s research shows that logistics and retail companies were the most active sector in the second half of the year, with third party logistics operators taking a 31% of the space let and retail related businesses accounting for another 11% of the space let.  The 22% share attributed to the construction sector was greatly influenced by The Carey Group’s purchase of a warehouse in Wembley.

Bridget Outtrim, director in Jones Lang LaSalle’s National Industrial and Logistics team, said: “Whatever these statistics appear to suggest, its important to bear in mind that the increase in lettings came off a low base and the re-emergence of data centres, which had been largely absent from the market in the first half of the year, took substantial tracts of space in the second half.”

Jones Lang LaSalle’s report shows that whilst there was virtually no change in the average Grade A rental value (£11.17 per sq ft) in H2 2008 in the region, a 2% rise in rents seen in Park Royal and Greenford narrowed the gap between Park Royal and Heathrow to just 50p per square foot.
  Heathrow, which still attracted the highest rental values, saw a 4% fall in rents in the same period, led by pro-active landlords responding to the level of competing Grade A supply.

Bridget Outtrim added: “The dominant investors around Heathrow, who have so often led change, have once again reacted to the zeitgeist by reducing asking rents on vacant Grade A stock; for the first time in six years. Where they go, others will undoubtedly follow.”

There was very little investment activity in the region in the second half of the year. Total returns fell by 19.5% in West London in H2 2008, resulting in a fall of 24% over the whole year. In the Thames Valley, total returns fell by 15.8% in H2 and 21.6% over the whole year.

Michael Kershaw, associate director in National Industrial Investment, added: “Investment yields have risen across the Western Corridor region and we expect them to soften further. Where there is money, investors are targeting prime, well let product with strong covenants.”

Looking forward into 2009, Jones Lang LaSalle expects vacancy rates, which remained broadly unchanged last year at 7.3% to rise in the Western Corridor as businesses retrench and it seems inevitable that there will be some further decline in rental values; with the gap expected to widen between Grade A and B space.

“We do however remain committed to the view that most property is reasonably well priced in this market. Simply dropping rents will not generate demand – that will come from an upturn in the economy,” added Bridget Outtrim.
Infrastructure improvements is a positive force in property markets and with several major projects are planned for the region – a third runway at Heathrow, a hub railway station and Cross Rail – Jones Lang LaSalle predicts any of these would provide a boost to the local economy and positive impact on the industrial/warehouse market.