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News Release

Birmingham

Dwindling Big Shed supply causes concern according to Jones Lang LaSalle

As occupier market hots up


Birmingham, 28 May 2012 – With very few big sheds remaining in the “Golden Triangle”, which centres on the M1 and M6, Jones Lang LaSalle is seeing a marked increase in demand from occupiers as prime sites start to dry up says Carl Durrant, director of National Industrial and Logistics at the Birmingham offices of Jones Lang LaSalle.

“This is clearly demonstrated by news just breaking that furniture retailer Steinhoff UK has just beaten another occupier to get one of the biggest available warehouses in the Midlands.  They are reported to have offered circa £25million for the building on Magna Park in Leicestershire.”

Figures from Jones Lang LaSalle’s Big Box Report 2012 show that barely more than 9 million sq ft of big shed space remains to be let across the UK.  That equates to less than a year’s take up, even in a reasonably average year such as 2011.

Carl Durrant said: “The occupational market is starting to hot up as occupiers realise that if they don’t make a move soon, there will be little choice to satisfy any expansion or consolidation plans. And if they go down the ‘Built to Suit’ route which is a growing trend in the industrial market, they could take up to 12 months to find a suitable site and move in.  Businesses need to plan much further ahead and that planning has to happen now, if they don’t want to be left high and dry.”

The main players in the occupier market at present are retailers, third party logistic companies and recently automotive companies, all of which have very specific requirements.  Whilst economic growth and confidence has restrained some occupier demand there are a large volume of active requirements in the market which Jones Lang LaSalle is expecting to boost take-up in the second half of the year.

Last year, retailers accounted for 42% (5.6 million sq ft) of all floorspace taken up in Grade A units, logistics companies accounted for 34%(4.4 million sq ft), manufacturers accounted for 13% (1.7 million sq ft) and ‘others’ accounted for 11% (1.5 million sq ft).

Carl continues: “Whilst there has been a moratorium on big box speculative development, we are getting some of the first signs of a return to limited speculative build, with rumours in the market circulating that a number of spec buildings might start in the next 12 months as the supply of big sheds dwindle, however this won’t solve the shortage”

Allan Wilson who heads up the Capital Markets team for Jones Lang LaSalle in Birmingham agrees that whilst limited speculative building will likely return, the unknown fate of the Eurozone and lack of economic confidence is creating caution and that was unlikely to be resolved for some time.

“Those bitten after the boom years are treading very carefully and will be loath to commit themselves at this time.  The cost of holding land is much less expensive than buildings due to the absence of empty rates, limited maintenance and reduced insurance.
“It’s paradoxical really that whilst the occupational market is appearing stronger, the investor market will take some time to catch up and will need time for confidence to build that overall market conditions support speculative development.”
 
Carl added: “Developers with land already secured are in the best position to take advantage of an upturn in the market.  Prologis for example have announced built-to-suit five year leases to meet the needs of customers in the UK seeking modern distribution space on a short term basis.”
Carl Durrant concluded: “We can see that the options for occupiers are limited and some may look at taking slightly bigger premises to accommodate future growth or look at more efficient ways of using space whilst a shortage of prime space exists.  It’s clear from Allan’s comments that occupational demand is only one driver in the marketplace and we have a long way to go until equilibrium returns between supply and demand.”