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London, 8th October 2014- The latest Western Corridor Industrial and Warehouse Market report from JLL finds that spiralling demand is continuing to squeeze already constrained Grade A supply and is impacting on both rental prices and incentives.
In the first half of 2014, total take up was 2.4 million sq ft, 12 per cent up on the 10- year half yearly average of 2.1 million sq ft. Of this total, 1.4 million sq ft was taken up in West London and 1 million sq ft in the Thames Valley.
A significant share of demand in the first half of the year came from companies serving online retail purchases. Asda signed for a new 115,000 sq ft BTS warehouse at Titan in Heathrow for online fulfilment and delivery service GeoPost has signed for a 37,700 BTS unit in Reading to support an increase in internet shopping.
Take- up in the first half of 2014 was boosted by an increase in Grade A demand. Around 650,000 sq ft of Grade A space was transacted, over double the level recorded in the second half of 2013. Overall, available Grade A space fell by 24 per cent between mid- 2013 and mid-2014, highlighting the pick-up in demand and limited new speculative development.
There are currently eight schemes speculatively under construction totalling around 640,000 sq ft with West London accounting for two-thirds of all floorspace under construction. In West London existing schemes are focused around the Heathrow and Park Royal areas, while in the Thames Valley construction is taking place in Slough, Bracknell and Reading.
The report finds that diminishing supply is shifting the market balance in favour of landlords and developers. Typical rent free periods have halved in the last year and prime headline rents in Heathrow for estates around the airport now stand at £13.50 per sq ft compared to between £12.50 and £13.00 last year.
The research highlights increased rental values in a number of key Thames Valley locations including Maidenhead, Reading and Slough. Rental incentives have also been introduced and landlords can now expect to offer a rent free period of around six months for a five year term compared with 9 to 12 months a year ago.
Investor interest in the market around the Western Corridor remained very strong in the first half of the year with a large weight of domestic and international money targeting the area. Limited available investment stock has constrained the number of transactions which has in turn led to available properties attracting considerable interest.
Key investment transactions this year include the sale of One Park Royal to M&G Real Estate for £22.6 million and the sale of Lister Road Industrial Estate, Basingstoke to Orchard Street for £13.3 million. Yields continue to be compressed, with West London yields currently standing at 5.00 per cent, 50 bps in from last year. In the Thames Valley they are at 5.50 per cent, 25-50 bps in from a year ago.
Andy Harding, Head of JLL’s Industrial & Logistics team, commented: “The lack of Grade A space is driving rental values up and leading to tightened demand, which simply won’t be met by current speculative development levels. Good economic indicators and the rise of internet retailing mean that the supply crunch looks set to continue.”
Director - Industrial & Logistics
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