Occupier take-up of industrial and warehouse space in the western corridor region, including the Thames Valley and West London, totalled 2.34 million sq ft in the second half of 2010 – the highest half yearly level since 2006, according to Jones Lang LaSalle.
In West London, industrial leasing activity in H2 2010 jumped up 43 per cent compared with the first half of the year, to 1.3 million sq ft.
In the Thames Valley, take-up increased by 33 per cent over the same period to 1.1 million sq ft.
Occupier activity was particularly strong for smaller industrial units below 10,000 sq ft, but overall the picture remained mixed.
In West London, occupier activity focussed around Park Royal and the A40 corridor. Activity in Heathrow remained subdued, despite plentiful supply, although there was a pre-let of 55,000 sq ft in Horton Road to Heathrow Cargo Handling, underlining the critical significance of location in the area around the airport.
Bridget Outtrim, director, Jones Lang LaSalle National Industrial and Logistics team, said: “Throughout 2010 occupier focus on grade B space was marked. In West London, it accounted for over 70 per cent of all space let, even though there was a healthy supply of grade A to choose from.
“Price has and will remain key for the foreseeable future; and where landlords are prepared to be flexible, there are deals to be done”.
There has been virtually no movement in headline rents for grade A space, which remain at £12.50 around Heathrow, but generous incentives have been conceded for grade B space which Jones Lang LaSalle believes has probably been the driver behind the grade B take-up.
“Good grade B space can be acquired for £9 per sq ft around Heathrow today, making it cheaper than Park Royal,” added Outtrim.
According to Jones Lang LaSalle’s research, while vacancy rates are at a historic high there was a marginal decrease in the second half of 2010 in the vacancy rate to 8.7 per cent.
Outtrim concluded: “It’s too early to call this small decrease in the vacancies a turning point as rates across the Western Corridor region remain higher than at any year end since our research began in 1995.
“We expect there to be net absorption of industrial/warehouse space in this region in 2011 and a consequent erosion of the vacancy rate. We do not, however, forecast a return to rental growth this year, instead, we expect rents to be stable.
“Vacancy rates are at a historic high and it seems unlikely that they will decline to levels that will kick-start rental growth before 2012. There may be exceptions to this around Heathrow Airport for the best located space. It seems likely that there will be some impetus to the speculative development market however and we expect to see a few more examples of pre-letting.”
Jones Lang LaSalle has outlined a number of demand drivers that it believes bode well for 2011:
• Record levels of cargo handled at Heathrow airport in 2010 herald the prospect of expansion around Heathrow.
• There will be a continuing need for new business models arising from the growth in e-commerce.
• The projected increase in the population of London will create demand for goods and services.
• The prospect of churn arising from the expiry of leases agreed in 2006.