Deals for large units dominate logistics property in 1H 2010
September 20th 2010 The first half of 2010 has been surprisingly strong for the logistics property market according to the Gerald Eve Prime Logistics Report Q2 2010. Gerald Eve, a company of chartered surveyors and property consultants carries out regular research of the market.
Head of research Sally Bruer said: “The latest figures are surprising given the poor figures for 2009 and given the uncertainty about the strength of the economic recovery.
“However, there are a number of deals and developments for very large units that improve the figures beyond what they may have otherwise been.
“Looking forward, the second half of 2010 may in our view not prove to be as healthy in the first half.”
Demand robust
According to Gerald Eve, take-up totalled 16.6 million sq ft to the end of Q2 2010, up from the 15.0 million sq ft in the six months to Q4 2009 and the 14.9 million sq ft to end Q2 2009.
For the first quarter since Q1 2008, the four-quarter rolling average total take-up has started to rise after eight quarters of falling totals.
For the four quarters to the end of Q2 2010, take-up totalled 31.6 million sq ft, a marginal rise on the four quarters to the end of Q1 2010 of 29.3 million sq ft.
This is still somewhat off the long-term average of 33.1 million sq ft.
Take-up continues to be driven by retailers, accounting 6.0 million sq ft or 36% of total take-up in the first six months of the year.
This 6.0 million sq ft has included some units of substantial size, including B&Q’s 796,649 sq ft pre-let at G.Park Swindon (subject to planning), ASOS taking ProLogis’ speculative 530,000 sq ft unit at ProLogis Park Barnsley and JD Sports’ purpose-built 616,000 sq ft distribution centre in Rochdale.
Larger properties
The first half of the year has seen a significant proportion of deals for larger warehouses of more than 250,000 sq ft. (8.1 million sq ft) – almost half the floorspace taken up in the first half of 2010 was for units of this size.
As a result, despite the increase in floorspace taken up since the last half year – an 11% increase from 15.0 million sq ft to 16.6 million sq ft – the number of transactions has remained relatively stable – 100 in the first half of 2010 compared to 103 in the second half of 2009.
This demand for larger units has particularly meant that occupiers have continued to ‘consume’ still available, larger speculatively built units, most of which were completed in the 2006-2008 development boom. In the first half 2010, 31% of floorspace taken up was for speculatively built new space, compared to 19% in 2009 and 20% in 2008.
However, as the availability of speculatively built units has contracted, pre-lets, pre-sales and sale of development land for occupier development has also fuelled the take-up of larger units: another 21% of total floorspace taken up was for purpose-built schemes, on par with the 21% in 2009 and in excess of the 16% in 2008.
Lack of speculative development
This shift in take-up has been particularly as a result of the lack of speculative development.
In the first half of 2010, no speculatively developed schemes have been delivered to the market.
This follows the massive drop off in volumes in 2009: just 169,000 sq ft was completed in the second half of 2009 and 1.6 million sq ft in the first half of 2009.
Compare this with the 11.9 million sq ft of speculative space completed in 2008 and the 18.0 million sq ft in 2007.
A total of just 3.5 million sq ft has been completed in the first six months of 2010, all of it purpose-built space.
Of this 3.5 million sq ft, just two units accounted for almost two million sq ft: Tesco’s 920,000 sq ft import centre at Teesport and Marks & Spencer’s 1.03 million sq ft unit at ProLogis Park Bradford.
The remaining 1.5 million sq ft was built as just eight additional units, two of which were nearly 500,000 sq ft apiece.
The total development volume for the first half of 2010 is down even on the first half of 2009 when just 4.6 million sq ft was completed.
Given that the floorspace delivered in 2009 as a whole represented the lowest level of development volume for a decade.
The first half of 2010 is down on even these figures means that we may be in for another record low year.
As a result of the lack of development of speculative space, availability has finally stabilised after moving out from 13.2% in Q2 2007 to 16.7% in Q2 2010.
Bruer continued: “In terms of outlook, we expect demand in the second half of this year will be more subdued as consumers and businesses’ outlook for their own situations and that of the general economy become more uncertain.
“The potential for a ‘double dip’ both in the UK and abroad – particularly amongst key trade partners in Europe and the US – and the expected impact of the UK government’s spending review on jobs and spending are likely to impact on consumer confidence and therefore spending levels as well as business and government investment, all of which are likely to dent demand levels.
“We therefore expect that despite the healthy start to the year that overall take-up volumes for 2010 will be below average although may exceed the volume for 2009.” More articles from Handling & Storage Solutions: | 
