Scottish industrial space take-up hit by lack of supply
Colliers International said rents remain steady at high levels but 29% less floorspace transacted in 2018
Take up of industrial units in Scotland plunged by more than a quarter last year as the lack of premium buildings started to take its toll on the market.
Figures from commercial property firm Colliers International, presented at their annual Scotland Industrial Trend Tracker event, showed companies bought or rented around 5.8m square feet of industrial space across Scotland in 2018, down 29% on 2017 and 34% below the five year average of 8.8m sq ft.
However, Iain Davidson, Director of Industrial & Logistics at Colliers International’s Glasgow office, said demand had actually remained robust, even in the run-up to an uncertain Brexit.
He said: “We believe these figures are more to do with a lack of stock, as opposed to lack of occupier appetite. In West Scotland, availability has been declining over the past few years to the present 7.0%, representing a whopping 46% reduction from the 2011 peak of 13%. Indeed, we are currently aware of a number of unsatisfied requirements due to the dearth of suitable properties – whether that be because of size, location, specification or tenure. The development pipeline is very limited with only 500,000 sq ft under construction or planned across West Scotland this year. This represents approximately two months’ take-up, based on the five-year take-up average.
“The last few years have seen good rental growth across all size bands with prime small-mid size rents typically between £7.50 to £8.50 per sq ft. Last year rents generally remained stable at these high levels with achieved rents reinforcing some ‘notional’ rentals reported in previous years. Few occupiers seem to be mentioning Brexit, albeit only time will tell whether this starts to affect demand.”
By way of example, Davidson said that he was aware of at least two companies which were still looking for large sheds of over 200,000 square feet in West Scotland. Such units are not easily available and there were no industrial sector deals above this size recorded north of the Border in 2018.
Davidson added: “While the smaller sub-15,000 sq ft size band remains the most active, accounting for 44% of total take-up, and many multi-let estates are witnessing record low voids or full occupancy, it may come as a surprise to hear that this size band accounted for most of the fall in take up last year. Again, this indicates a lack of suitable supply as opposed to faltering occupier demand.”
West Scotland saw take-up of 2.3 million sq ft in 2018, down 22% on the previous year. The area accounts for 40% of Scotland’s total take-up.
Lewis Pentland, Associate Director at Colliers’ Edinburgh office, said: “Day to day we are witnessing steady demand and it’s encouraging to see more development coming through the pipeline. Nevertheless, areas peripheral to Edinburgh are likely to experience further rental growth: There are size bands these new schemes won’t cater for and where little supply exists, so we would expect to see more ’design and build‘ in the east going forward.”
East Scotland saw take up fall from 1.3m sq ft in 2017 to 1.1m sq ft. The area, which includes Edinburgh, Falkirk and Grangemouth, actually saw an increase in activity in the 15,000 – 50,000 sq ft bracket, with over 350,000 sq ft worth of take-up in that size range. Above this size, however, there was little occupier activity over the course of the year as both demand and supply remain tight.
The largest deal in the East of Scotland was to packaging company Nampak at Fraser Road, at £4.40 per sq ft, in which Colliers were joint agents for the landlord.
In the West, the largest deals were at Eurocentral, where Brewdog acquired the 129,000 sq ft Vertex building, and Grayling Capital the 122,000 sq ft Titan warehouse, advised by Colliers.
Colliers said demand for industrial space continues to come from a broad spectrum of sectors such as food & drink, engineering, storage, distribution, service sector and manufacturing. While parcel delivery firms have been a feature of market activity, Scotland has seen lower levels of demand from on-line retailers than the rest of the UK as much of the increased e-commerce demand is served by large warehouses in the north of England.