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10m sq ft of industrial spec development a year is sufficient - Savills

10m sq ft of industrial spec development a year is sufficient - Savills

According to Savills, there has been 10.1m sq ft (938,320 sq m) of speculative announcements in 2018, a 134% increase on the five year average. Due to continued demand from across the industrial and logistics sector, the firm believes that the market can accept this level of new stock given current market conditions.

Savills notes that average take-up has almost doubled in the past nine years, increasing from 16 million sq ft (1.486 million sq m) to circa 30 million sq ft (2.787 million sq m) in 2018 to date. This can largely be attributed to the shift in consumer behaviour and the significant growth in online retail during this period. As a result, vacancy rates have remained low across the UK, averaging 6%, despite the notable increase in speculative development.

Kevin Mofid, head of industrial research at Savills, comment: “For those who witnessed the last recession back in 2008, there is still residual nervousness around speculative development. However, 10 years later we are looking at a very different landscape where vacancy rates are as low as 3% in and around London and the South East and there is simply not enough supply to satisfy the current demand. Assuming occupier demand doesn’t fall dramatically and there isn’t a significant increase in second hand supply, we believe that this is the perfect level of development to sustain the market moving forward.”

Looking back to 2016, a record year for the sector, Savills research found that 72% of all speculative development was let within a 12 month period with an average nationwide void period of just six months. Whilst 16% of stock remained vacant, this is likely due to the buildings not meeting occupier requirements in the market at that time.

Over the past 4 years build-to-suit has remained dominant with take-up accounting for up to 50% of all transactions in 2016, mainly because of the lack of available speculative units during this time period. Savills suggests this is likely to change as more speculative schemes are announced in the coming year.

Richard Sullivan, national head of industrial & logistics at Savills, adds: “We believe that the currently level of speculative development remains just right to fulfil outstanding demand. However it is important that we continue to respond to occupier requirements and provide the right space at the right time and in the correct locations. Vacancy rates of up to 10% can be tolerated and in fact will likely redress the current rental imbalance we are currently experiencing in supply starved markets.”

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