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News Release


UK Industrial & Logistics market saw signs of improvement in second half of 2009

Although sluggish economic recovery will continue to hold back growth this year according to Jones Lang LaSalle

London, 15th March 2010 – According to Jones Lang LaSalle’s latest UK Industrial & Logistics research report, the second half of 2009 (H2) recorded a strong increase in occupier activity in the UK Industrial and Logistics market and further improvement is anticipated in H1 2010.  However, an unsteady economic recovery may limit the overall take-up rate for large units and many occupiers will be able to absorb any potential growth in existing units which are currently not operating at full capacity.
Total 2009 take-up for distribution warehousing units over 100,000 sq ft amounted to 10 million sq ft, nearly 30% less than in 2008. For the first time since demand collapsed in mid 2008, take-up in H2 2009 (6.1 million sq ft) increased 56% on the previous half year (H1 2009) and nearly 40% on the same period in 2008.
Commenting on the research, Richards Evans, joint head of Jones Lang LaSalle’s National Industrial & Logistics team said: “Whilst improving take-up figures in the second half of last year is positive news for the sector, it is important to bear in mind that this growth is based on low volumes.
“Despite improving sentiment and market fundamentals a number of downside risks remain including a sluggish economic recovery, rising oil prices, the government backing out of fiscal stimulus programmes prematurely, and a continued uncertainty in the financial sector. We expect 2010, therefore, to be another challenging year for landlords and developers, but the signs are promising.”
As with the second part of last year, Jones Lang LaSalle anticipates that demand in 2010 will predominantly be driven by ongoing space consolidation, occupiers enhancing operational efficiency through upgrading into modern stock and to prime infrastructure locations, as well as lease expiries and regearing. However, there are also emerging sectors such as waste-to-energy & recycling, and internet retailing which continue to gather momentum and could drive occupier demand.
Development activity continued to decline throughout 2009.  In H2 2009, 1.4 million sq ft of new space was completed, 17% less than in previous half year (H1 2009). Total new completions in 2009 totalled 3.2 million sq ft, nearly 80% down on 2008.
Jones Lang LaSalle expects development activity to remain limited for another 12 to 18 months due to the tight finance sector, combined with concerns about a sustained growth in occupier demand. Most developers will commence new construction only under the premise of a long term lease agreement, translating to a minimum lease length of 15 years.
Whilst availability will remain high overall, lack of development is already resulting in the reduction of modern accommodation in some markets. Jones Lang LaSalle’s anticipates the remaining modern stock to be gradually taken-up throughout 2010, subsequently there is a high likelihood of scarce new supply in some areas during the second half of the year, limiting occupiers choice and likely to drive a hardening in lease terms.
Throughout 2009 prime distribution warehousing rents decreased in the majority of the markets Jones Lang LaSalle monitored. Prime rents in the UK declined on average by -4.5% year-on-year. The largest annual rental falls were recorded in Oxford (-14%), Bristol (-13%) and Maidstone (-10%). Rents in the Greater London market fell between 2% and 9% annually, with prime rents in the London Heathrow market declining by 6%.
Cameron Mitchell, joint head of Jones Lang LaSalle’s National Industrial & Logistics team, added: “In our view prime warehousing rents reached their base at the end of 2009. With stabilising occupier demand and limited development in 2010 we expect to see rental growth throughout a number of markets offering limited modern stock whilst incentives will gradually decline.”
As in previous market cycles, the investment market started to bounce back earlier than the occupier market, recording increased investment volumes and a rebound in yield levels. Investment activity in the industrial and logistics continued to increase over the second half of 2009, up 33% on the revised H1 2009 volume. Total investment in industrial property in 2009 amounted to ₤2.3 billion and was 20% higher year-on-year.
David Emburey, joint head of Jones Lang LaSalle’s National Investment team, added: “Despite a high interest from oversees investors, last year the industrial investment market was dominated by UK investors, who accounted for 95% on the vendor side and for nearly 70% on the purchaser side.”
David Emburey concluded: “High competition for limited prime investment opportunities is driving down prime yields as the UK has become the favoured market for investors in 2009.  Prime yields had compressed, for example, by 75bps in London to 6.50% in Q4 2009. In the regional markets, yields were lowest in Birmingham at 6.75% in Q4 2009, after also compressing 75bps. A slightly lower yield compression was recorded in Glasgow, Leeds and Manchester, down 50bps over the quarter with yields between 7.00% and 7.50%.”