Recent reports make bleak reading for occupiers but there is a glimmer of rebellion on the horizon and landlords may not be getting it all their own way after all.
According to Lambert Smith Hampton’s latest National Industrial and Distribution Market 2012 research, for the first time in three years rents for prime A space have risen.
Steve Williams of Lambert Smith Hampton, said: “Our findings show that prime rental values are on the increase in strategic locations where there is little or no grade A space available. This market imbalance will cause the market to tip in favour of landlords who own quality space, allowing them to harden their stance on rent and incentives.”
Grade A availability currently stands at the lowest it has been for five years. In most size bands this represents 12 months of supply, with the most acute shortage in the distribution warehouse sector, where supply is down to six months based on 2011 take-up levels.
The glimmer of hope comes from companies such as The Stobart Group which is basically building its own and investing in property through its Stobart Estates subsidiary. It’s a risky path to take but can be extremely lucrative as many a developer can attest.
Williams notes: “There are the number of pre-lets and build to suits taking place, during 2011 they accounted for 60 per cent of market take-up as occupiers turned to developing their own space or forging partnerships with developers to gain the space they need. There were relatively few other options available to occupiers as little or no speculative development occurred in 2011.”
Those not able to raise the finance for such ventures are not shying away from reality. There are no alternatives, even deals on second hand units are hardening rapidly adds Mike Alderton of Lambert Smith Hampton.
However, he says some occupiers are beginning to look more strategically. Clipper agreed a 17 year lease on the back of a contract with Asda for space in the North East. There are no guarantees that the contract will remain with the company for the length of the lease but for Clipper the risk that they will be able to utilise the facility beyond the life of the contract is obviously worth it.
Other companies are also looking along the same lines of consolidating into strategic hubs around the country where they will be able to operate shared-user facilities.
For clients the crux will be whether the new service will be financially attractive as well as efficient for the 3PLs. This means that they can take advantage of economies of scale, will be able to benefit from security of tenure over a longer period making capital expenditure in the latest supply chain systems more attractive. In addition being able to secure a longer tenancy will mean that they can afford to invest in the most up to date facilities with the lowest operational running costs.