Record value masks slowdown in volume of NW industrial property investments

Investment deals for industrial properties around the North West hit their highest in value in the first half of 2023 – but this masks a slowdown in the market, with one deal accounting for almost half the £979m total.

New figures from B8 Real Estate revealed that Blackstone’s £480m acquisition of the Trafford Park Portfolio and Heywood Distribution Park accounted for the bulk of the activity, while the remaining 29 deals represented a fall of almost 25% on the first half of 2022.

During the six months rents continued to rise, driven by lack of supply, with £9.50 per sq ft now being achieved on larger units over 90,000 sq ft and record rents of more than £10 per sq ft on mid-sized new-build units.

However, occupier take up of larger units (over 90,000 sq ft) fell to 1.5 million sq ft, down by 64% on the first half of 2022, though with a number of sizeable deals due for completion, take-up is expected to improve in the second half.

John Burrows from the investment team at B8RE, said: “Investors’ demand for industrial property has remained robust compared to other property sectors but the supply of properties remains restricted. Many owners are unwilling to sell in the current market and there remains a strong impasse between vendors’ and buyers’ price expectations.

“Meanwhile purchasers are being more selective as stubborn inflation and uncertainty about when interest rates will peak has made them more cautious. It is also harder for them to deploy capital as higher finance costs make it ever more difficult to achieve the desired returns at current prices.”

Will Kenyon, from the B8RE agency team, said: “Economic uncertainty, influenced by inflation and rising interest rates, has undoubtedly resulted in caution on the part of occupiers. However, with almost 1.27 million sq ft of space in solicitors’ hands and several unsatisfied high profile requirements, we anticipate stronger take up levels in the second half. Low supply levels are helping to maintain rental growth.”

He added: “One key trend we are seeing is the focus on new or modern units and we expect demand for these to remain strong for the remainder of the year.

“Operational efficiencies and ESG credentials continue to be important to occupiers and many are looking to move to more modern premises. An increasing number of investors are also announcing they are unable to acquire assets that do not meet their ESG requirements.”

Key investment deals during the six months included Cabot Properties’ acquisition of three units at Carrington Gateway for £19.8m; Clarion Partners Europe’s £89m acquisition of three warehouses at Gorsey Point, Widnes; and Leftfield’s acquisition of the Warrington warehouse occupied by Farmfoods for £32m.

Lettings included that of 152,000 sq ft at MA6NITUDE in Middlewich to Jet2, and a 91,000 sq ft unit at Omega in Warrington to Scientific Gaming which achieved a record rental for the area of £9.50 per sq ft, up from 2022’s headline rent of £8 per sq ft.

Meanwhile, new figures from Savills in its latest Big Shed Briefing show that North West take-up of industrial and logistics space reached almost 2.15 million sq ft across nine transactions in the first half of 2023, which is three per cent above long term average.

Manufacturers have accounted for 43% of the total take-up, followed by high street retailers and data centres and film studios, with the average deal size at 238,859 sq ft.

Savills notes that the supply of warehouse space in the North West has increased by 111% in the past 12 months. Using the three year average annual take-up, this is equivalent to 0.84 years’-worth of supply in the region.4

Although the vacancy rate has increased to 6.17%, this is still crucially below the peak of 9.6% in 2019.

There remains a low level of good quality supply as there is 39% grade A speculatively-developed space, seven per cent second-hand grade A space, 28% grade B space and 26% grade C space. For this reason, the firm expects prime rents to continue to grow and RealFor recommends 5.3% per annum for the next five years.

There are currently five units being speculatively developed, totalling circa 925,000 sq ft. Savills is tracking multiple other schemes that have achieved planning, however, funding issues have caused them to be temporarily paused.

Should these units come to the market without being pre-let, the vacancy rate would rise to just 7.2%, which is still below the peak vacancy rate in 2019.

Jon Atherton, director at Savills, said: “The North West continues to be well balanced between supply and demand of industrial units. We have witnessed an uptick in supply, but we’re lacking the Grade A quality space in desirable locations to attract the right occupiers.

“We expect to see some significant transactions this year which should bolster end of year take-up figures for the region.”