Simon Price, senior partner at Alder King, says phenomenal demand for industrial/logistics space throughout last year means businesses seeking top quality space will need to consider a pre-let or pre-sale and expect to pay higher rents.
This is one of four key trends identified in Alder King’s Market Monitor report which provides detailed analysis of the commercial property market in 10 key centres:
1. Phenomenal demand for industrial/logistics property
In a year that threw up a host of questions for the property market – about how we live, how we work, how we shop, how we socialise – it’s remarkable how resilient some sectors of the market were in 2020.
The industrial/logistics market emerged strongest from the crisis, recording annual take-up of over 6.3 million sq ft in the South West, the region’s highest figure since 2016. This was driven by continuing demand from e-commerce businesses, government investment in infrastructure and last mile logistics.
The strength of the sector is best illustrated by Greater Bristol where 2.2 million sq ft of space was let or sold last year, a 55% increase from that in 2019. Other locations also experienced strong demand but occupiers were constrained by a lack of immediately available space.
Andrew Ridler, Alder King’s head of industrial/logistics agency, says this means many businesses seeking quality space this year will need to consider pre-lets or pre-sales on some of the schemes currently under development.
“Developers including St Modwen, Chancerygate, Summerfield and KMW are all bringing forward speculative schemes in various locations across the South West, with Alder King acting as agents on many,” he says.
“For some industrial occupiers, affordability will be an issue as the rental gap between new and good quality second hand space has reduced significantly. This will lead to further upward pressure on industrial rents, particularly for those facing their first rent reviews on space acquired since 2015.”
2. Office occupiers review requirements
Another key feature highlighted in Market Monitor is the impact of the pandemic on the office market. With the widespread move to remote working over the last year, many office occupiers are reviewing their future occupational requirements and commonly expecting to need less (by circa 10-20%) space but of a better quality/specification.
3. A flight to quality for investors
Investors, as always in turbulent times, were drawn in a general flight to quality, showing strong demand for industrial/logistics, prime offices and other secure income assets. While transactions volumes were down in 2020, there is a significant weight of money looking for attractive returns and with greater certainty later this year, investors will return.
4. Retail lease flexibility offers opportunities for independents
The pandemic accelerated on-going change in the retail and leisure sectors. With a relaxation in planning policy and strong pent-up demand from consumers, the opportunity now exists to evolve our high streets to incorporate more independent retail – which on the whole survived better than the large chains – as well as a wider mix of uses including residential, leisure, workspace and civic amenities.
While the overall situation remains unsettled, we are optimistic about 2021. We start the year with a Brexit trade deal in place, a Covid vaccination programme underway and a pipeline of market opportunities for developers, landlords, investors and occupiers and we are hopeful of a sustained bounce-back in most sectors of the market beginning the second quarter of 2021.
Alder King’s Market Monitor 2021 provides a comprehensive analysis of the commercial property market in Bristol, Exeter, Gloucester, Swindon, Bath, Bridgwater, Plymouth, Taunton and Truro. Read the report.