Industrial real estate supply at ‘critical level’ in North West

The supply chain for the industrial and logistics sectors across the North West is at a “very critical level” according to new research by commercial real estate firm Colliers.

Its latest Industrial & Logistics Viewpoint report says ther is only 1.7 million sq ft available of units sized 100,000 sq ft+. And as of the end of 2021, nearly half of this space was either under offer or due to complete in the first quarter of 2022.

The report says only three Grade A units are currently available and one of these units is Super W in Warrington (245,000 sq ft) developed by Tungsten/British Airway Pension Fund, which Colliers is marketing.

As regards new availability, Colliers says that around 3.8 million sq ft was under construction and marketed for completion in 2022.

John Sullivan, director and head of industrial and logistics North West at Colliers, said: “This high level of demand, in a depleted supply environment has caused strong rental growth with annual prime average rental growth reaching 11.2% in January 2022.

“In 2023, we will see more rental growth with developers likely to guide between £8 per sq ft and £8.25 per sq ft for the best products (100,000 sq ft-plus) around Manchester and Warrington.”

The report says that occupier demand for distribution warehouses of 100,000+ sq ft remained very strong in the North West and reached 5.9 million sq ft in 2021, just slightly lower than the record six million sq ft recorded in 2020 and 42% ahead of the five-year annual average.

On take-up by unit type, the region saw 65.3% of take-up on new units (40.1% for speculatively developed units and 25.1% for purpose build units), and 34.8% for second hand units.

The report explains that Amazon was very acquisitive and agreed several lettings in the North West region – 650,000 sq ft at K800 site in Knowsley; 216,000 sq ft at Kinsway216 in Rochdale; Unit 2 & 3 Mountpark Omega Mountpark (203,000 sq ft and 225,000 sq ft); Venus 217, in Knowsley and Unit F2G Multiply Logistics North (149,000 sq ft).

Elsewhere, AO.com agreed the pre-let of Crewe 305 (305,000 sq ft) at Panattoni Park Crewe and UPS took the newly developed 280,700 sq ft warehouse at Panattoni Park, Bolton.

The report reveals that the North West region broke the £1bn mark for industrial investment for the first time in 2021, settling at close to £1.1bn.

This record activity was 26.6% higher year-on-year and accounted for 27.2% of total investment volumes across sectors.

Chris Ward, associate director, national capital markets at Colliers, said: “Like in many major regional markets in the UK, pricing for industrial assets has sharpened, particularly for long income/single let-opportunities.

“Prime yields in key North West distribution hubs such as Warrington, Manchester and its surrounding towns have, for the first time, compressed below four per cent for 10-year and long income opportunities.

“An example of this includes NFU Mutual’s acquisition of the 216,000 sq ft Kingsway 216 warehouse let to Amazon (10-year lease) in Rochdale for £32.6m at a net initial yield of 3.74%. Looking forward, we envisage pricing to remain keen with strong investor appetite for well located and well let properties to continue unabated.”

Andrea Ferranti, head of industrial and logistics research at Colliers, said: “The performance of the UK industrial market is breaking records and investors are betting on the long term performance of the sector.

“Prime warehouse rents will rise by 12.5% in 2022 and 8.5% in 2023. We predict that increasing rents, land values, construction costs, logistics and labour costs will not dissipate in 2022 and that occupiers will need to act quick to secure a deal. We expect there will be more bidding at uncomfortable levels and purchasers might need to consider speculative funding to seek higher returns due to yields being at historic lows.”

She added: “The warehouse of the future will require more highly skilled people, a robust power supply, a good pool of labour and also Grade A workspace to not only attract and retain talent but also investors.

“More ESG regulations will also be introduced which will further affect the sector from a cost perspective as investors seek to purchase net zero properties and occupiers are required to adopt more sustainable technologies.”