Pre-lease deals and spec development dominate NW industrial occupier market
New research by property consultancy Knight Frank has shown that occupier demand in the North West industrial market remains robust with a further 1.2 million sq ft of space taken up in the third quarter.
This brings the year to date (YTD) total to almost six million sq ft, comprising units over 50,000 sq ft.
Although total take up for 2022 is unlikely to reach the record levels seen last year, 2022 is already the second highest year on record with the fourth quarter still to go.
Pre-lease agreements and speculative development continue to drive the occupier market, accounting for 71% of YTD take up. Notable deals in the third quarter included Farm Foods signing a 25-year lease on 246,136 sq ft at the newly developed Super W in Warrington, and the pre-let to DB Schenker at Ergo Park, Middlewich, which totals 123,000 sq ft.
Distribution and retail occupiers were particularly active in quarter three, combined accounting for 93% of take up and 71% YTD. Distributors in particular have been more resilient to rising occupational costs and are choosing to invest in robust supply chains.
While availability remains an issue for occupiers, particularly in the large, new-build market, quarter three saw construction completing on several new builds across the region. Notably, Ergo completed construction on a new 367,163 sq ft unit at Broadway Green, Oldham.
This has led to the volume of immediately available space increasing by 17% in Q3, to stand at 5.9 million sq ft (units over 50,000 sq ft), shifting the vacancy rate up to a healthier level of four per cent.
The majority of this available space still comprises second-hand grade B and C units (77%), while there remains a shortage of new, larger units available in the region. Just one of the recently completed new builds is over 250,000 sq ft.
The volume of space under construction speculatively in Q3 stood at 2.9 million sq ft (units over 50,000 sq ft). As a result of the lack of readily available options, occupiers are increasingly signing space prior to practical completion to help secure opportunities.
Industrial investment volumes in the region totalled £171m in Q3 2022. This brings the YTD total to £823m, 9.5% lower year on year as some volatility enters the capital markets.
The largest transaction in Q3 included GMPF’s £47.8m forward-funding of Imperial at Plot M, Kingsway Business Park in Rochdale, from Wilson Bowden Homes.
Prime rents in Manchester for units over 50,000 sq ft continue to rise, standing at £8 psf at end-September. This represents 3.2% growth in the quarter and 10.3% annually.
Looking ahead, average rents are forecast to increase by 3.8% next year in Manchester and by 2.3% in the North West region overall, according to RealFor.
An increasing number of design and build opportunities next year is also anticipated as speculative development remains capped due to rising development and borrowing costs.
Sam Royle, partner Manchester commercial, said: “We have started to see a downward adjustment in land values across the North West region, most likely due to a combination of increasing build costs, yields shifting outwards and movements in interest rates. We are, however, still seeing competitive bidding on prime sites in the region, albeit from a narrow range of parties.”
