Gerald Eve’s second Prime Logistics report reveals record levels of speculative development have added to a substantial volume of second hand space, leading to oversupply in some areas – great news for occupiers wishing to secure a good deal in these straightened times.
But it seems you need to hurry to grab a bargain as already this year some ten million sq ft of space has been snapped up in the first quarter.
Developers expressed their confidence in the market last year with more space built speculatively in 2007 than in any other year in the last decade. Speculative development last year accounted for 17.6m sq ft or 62 per cent of total development completions.
Most new spec units were in the 50,000 to 150,000 sq ft band but seven units were of 400,000 sq ft-plus. The north of England experienced the highest proportion of speculative space, at 69 per cent, while the South West and Wales had the lowest, at just 15 per cent.
With so much new space entering the market and competing with the already substantial volume of second hand units, some areas are showing signs of oversupply. Availability across the country stands at around 14 per cent but is substantially higher in areas like Merseyside & Cheshire, Greater Manchester, South Yorkshire and London East.
The highest availability rate, at the end of quarter one 2008, was in Merseyside & Cheshire, at 9.6m sq ft or 25 per cent, of which almost half is new and refurbished space. At the other end of the scale, Surrey & Hampshire and Suffolk & Essex have the lowest availability rates, with two per cent and three per cent of space respectively available for immediate occupation.
Following the significant volume of speculative supply that has recently come to the market, the level of speculative development starts has now started to drop off. Work began on only 14 new speculative schemes in quarter one 2008 compared with 26 in quarter four 2007, not surprisingly given the abolition of empty rates relief and the drying up of available speculative finance.
The impact of the empty rates changes is likely to be widely felt, not only in the slowing of speculative supply but also in the cost of vacant stock. Gerald Eve says about two-thirds of speculative schemes built in quarters one and two last year are still available today.
Chris Kershaw, head of industrial agency at Gerald Eve, says: “The removal of empty rates relief on factories and warehouses is adding more pressure on operators, landlords and developers. The double whammy of excess supply and penalties incurred by empty properties may impact on values and reduce speculative development.”