JLL Western Corridor research predicts record highs for industrial space demand, but all-time lows for supply

JLL has published its Western Corridor Industrial & Logistics Market Report for H1 2018, analysing the industrials market throughout West London and the Thames Valley.

September 26, 2018

JLL has published its Western Corridor Industrial & Logistics Market Report for H1 2018, analysing the industrials market throughout West London and the Thames Valley. The report reveals the following:

  • Occupier take-up of logistics floorspace across the Western Corridor totalled 2.8 million sq ft in H1 2018, 32% up on H1 2017 and 6% higher than the five yearly half-year average of 2.7 million sq ft
  • Industrial floorspace taken up in West London saw a 25% increase from H1 2017 to 1.6 million sq ft, with the Thames Valley increasing by 41% from H1 2017 to 1.2 million sq ft
  • Available supply of industrial space has fallen by 10% over the last 12 months to 7.0 million sq ft, with Grade A space falling by 21% over the same period
  • Available space in West London has fallen by 12% over the last year to 4.3 million sq ft, and in the Thames Valley there has been an 8% fall to 2.7 million sq ft
  • At the midpoint of the year there were just six schemes speculatively under construction in the Western Corridor totalling c.710,000 sq ft
  • Prime headline rents have increased by an average of 10% over 12 months to mid-2018

Jon Sleeman, director, UK Research at JLL, comments: "Good levels of take-up across the Western Corridor were recorded in the first half of 2018 and, at mid-year, we believe the market could be heading for a record year overall. However, supply is at its lowest level for three years and we predict that it will continue to fall.  Vacancy levels across some locations in the Corridor are likely to reach all-time lows and in some locations vacancy levels could approach zero.     

"This imbalance between demand and supply indicates the potential for further rental growth across the Western Corridor over the coming years. In our view, this supports a case for more speculative development, especially in the small to mid-size bracket where there is very little Grade A availability. The area will continue to provide attractive opportunities for investors and developers, and we believe this will remain the case over the coming years. Corporate occupiers will need to take account of these trends when planning their property needs as market conditions are likely to remain challenging."

The report highlights that strong investor demand for industrial space has persisted across the Western Corridor this year creating downward pressure on yields. Prime yields were 3.50% for West London and 4.00% for the Thames Valley at mid-year, both 50bps lower than 12 months earlier.

Adam Creighton, associate director in national investment at JLL, adds: "This year has seen an insatiable investor appetite for industrial and logistics assets across the corridor and this looks set to continue into 2019. Investor interest in the market has intensified, supported by the strong occupational factors driving rental growth. We believe that there is potential for further yield compression given the weight of capital targeting the sector, the lack of opportunity for investors and the resilience of this core market."

The research also revealed that, Heathrow continues to remain resilient within the market, with similar levels of activity to H1 2017. Rising cargo volumes year-on-year continues to drive demand for industrial space. 

Melinda Cross, director, Industrial & Logistics at JLL, commented: "Heathrow continues to be the hub of industrial growth within the Western Corridor. There is good traction at the upper end of the market (70,000 sq ft plus), however, there is a lack of stock in smaller units in the Heathrow market which has resulted in strong rental growth, as occupiers have been left with little choice in the market. Overall, we expect to see a strong end of the year for Heathrow in terms of floorspace taken up, with some size ranges seeing limited stock available given the lack of speculative development at Heathrow."