According to Lambert Smith Hampton’s latest National Industrial & Distribution report, rents will drop dramatically by up to eight per cent this year and a further 3.8 per cent in 2010.
In its 2009 Predictions King Sturge said rents would fall on average by six per cent or more and suggested the result could be skewed as the payment of empty rates may force the rents even lower as landlords become desperate to negate the economic burden. Other property pundits are predicting a ten per cent drop this year.
Lambert Smith Hampton said that rents would start to increase from 2011 in the meantime it stated: “We expect to see incentives rising significantly over the next two years across all markets as landlords seek to offload stock and reduce the burden associated with empty rates. Offering greater flexibility will be a key factor in attracting occupiers in a difficult market.”
However all agree that there is likely to be a two-tier market in the new-build sector with an increase in price gap between cheaper existing speculative stock versus increasingly more expensive build-to-suit schemes.
According to David Brookes of King Sturge: “The increased tenants inducement packages being offered in respect of new/modern existing buildings, will be significantly different to the deals that can be offered on build-to-suit schemes, where developers will be significantly less flexible in terms of length of lease (15-year minimum); the quality of covenant on offer and the rent- free inducements/headline rents.”
The number of sites available on a pre-let/design and build basis has increased because developers have decided not to build speculatively due to a combination of the threat of empty rates and the current downturn in the market. Speculative development is almost non-existent throughout the country with a tiny handful of schemes under construction and even fewer planned for the short term.