Partner at Knight Frank' Mark Proudlock' gives us an update:
What’s happening in the market?
The high level of demand for space that started during the early days of the Covid crisis is showing little sign of slowing. I can’t remember the last time we experienced this level of enquiries and the subsequent lack of stock makes it difficult to identify properties to meet occupiers’ requirements. This is the case across all property sizes and emphasises the pressing need for warehouse development across our region.
The year so far
Occupier take-up of units over 50’000 sq. ft. across the first three quarters of 2021 was over 3.1 million sq. ft. which is well ahead of the average annual take up of 2.3 million sq ft recorded over the previous half decade. Much of the increase has been driven by the uptick in online retail with internet sales as a percentage of total sales at around 25.5% Whilst lower than its lock-down peak of 37%’ this remains a marked increase from pre-Covid levels (19.1%). This suggests that for many consumers changes in purchasing behaviour may be lasting. We have also experienced take-up from manufacturing companies such as Strabag who Knight Frank advised on the acquisition of their 135’000 sq ft facility at Hartlepool Docks for the construction of tunnel segments for HS2′ as well as a variety of companies seeking to manufacture on shore or hold additional stock to protect them from supply chain issues. Stock levels are up by around 200’000 sq. ft. compared with the same period last year but any well-located quality units returning to the market are being snapped up.
Are new units being built?
The development pipeline can be slow to react but we are seeing speculative construction starting or about to start on a handful of sites across Tyne & Wear. UK Land Estates are first on site developing a 45’000 sq. ft. high bay unit on Eighth Avenue’ Team Valley in Gateshead with construction of a second unit of 36’000 sq ft on the adjacent site due to follow. There is already strong interest in both units showing the pent-up demand for quality new builds.
In Washington’ planning has been approved on schemes for Turbine Business Park and the Legal & General-backed Hillthorn Business Park. North of the Tyne’ UK Land Estates are about to start construction of a 48’000 sq. ft. high bay unit at Intersect 19 on their Tyne Tunnel Estate in North Tyneside. The unit will be ready in Q2 next year.
Is there land available for industrial developments?
There are a number of sites across the region allocated for industrial or logistics use at varying levels of readiness’ in terms of planning or site preparation. Teesside boasts a significant supply of development land awith Teesworks’ marketed as Europe’s largest brownfield site and the UK’s largest Freeport’ contributing 4’500 acres. GE Renewable Energy has committed to an 800’000 sq. ft. manufacturing facility at Teesworks to build wind turbine blades.
Land for manufacturing is available at the International Advanced Manufacturing Park (IAMP) to the north of Sunderland. However’ it has seen a high level of take-up – most significantly with Envision AESC’s recent announcement that construction will start on its electric battery Gigafactory next year. On Tyneside’ Port of Tyne has a number of development sites suitable for the delivery of build-to-suit units’ ranging from four to 35 acres for units up to 750’000 sq. ft. while on the 235-acre former Blyth Power Station at Cambois’ Northumberland’ enabling works have started on the first phase of Britishvolt’s electric car battery gigafactory. When complete in 2027 it is understood the factory will be over four million sq. ft. and according to Britishvolt’ the largest single industrial investment in the North East since the arrival of Nissan.
What’s the answer to balancing out the supply and demand issue?
Viability and duration of the development process remain key barriers. Funding initiatives such as those managed by the North East LEP have successfully enabled development which otherwise wouldn’t have happened. These interventions continue to play an important role in increasing stock.
In areas where rents have reached levels to make speculative development viable’ a handful of schemes are either starting on site or are imminent. It is yet to be seen if the extent of development will satisfy demand but the factors driving the need for space seem unlikely to change and with a limited number of developments in the pipeline’ developers should feel increasingly confident about committing to new schemes.
