The latest edition of the company’s annual Industrial & Logistics Market report reveals that take-up increased by 24% to 94.2m sq ft in 2013 in response to the economic recovery, an improving manufacturing sector, the ongoing drive by retailers to streamline their supply chains and growing appetite from logistics businesses serving the burgeoning e-commerce industry.

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Take-up in 2014 could set a new record

With these factors set to grow in importance in the short term, the authors predict that there is sufficient demand for take-up in 2014 to exceed the record 101m sq ft achieved in 2010.

The Industrial & Logistics Market report also finds that improving occupier appetite, combined with a lack of development activity that stretches back to before the global financial crisis, has led to a shortage of top quality (grade A) space in much of the country.  Grade A now represents just 9% of total available supply, down from a peak of 29% in 2008.

The return of speculative development

As a result, Lambert Smith Hampton forecasts that over 2m sq ft of space could be built speculatively during 2014 – the first meaningful volume of activity since 2007/8. Although this represents a significant increase over recent activity, it accounts for only 7% of current grade A availability and is unlikely to stem the upward press on rents.

By analysing current demand and availability – the first time this has been done on a national basis – the report identifies the Midlands and South East and the mid box (50,000 – 99,999 sq ft) and large building (100,000 sq ft +) size bands as most likely to see rental growth over the coming year.

Steve Williams, national head of Industrial and Logistics at Lambert Smith Hampton, said: “The market has recently staged a strong recovery and the outlook for the industrial and logistics sector over the next 12 months is more encouraging than at any time since 2008. 

“Improving confidence is driving demand to the extent that 2014 take-up could set a new record, exceeding the record 101m sq ft achieved in 2010.

Retail and e-commerce are major drivers

“The continued growth of internet shopping will remain an important driver over the coming year as logistics operators work out how best to respond to evolving consumer habits.  Traditional retailers are also looking to streamline their supply chains in order to improve speed to market and boost margins at a time when price rises are proving difficult to implement. 

“We will see the return of meaningful speculative development for the first time since 2007/8 on the back of growing demand, an acute shortage of grade A space in many regional markets, and the renewed availability of funding. Although this represents a significant increase over recent activity, it accounts for only 7% of current grade A availability and will not be enough to stop rents continuing their upward march.

“The Midlands and South East are most likely to see rental growth over the coming year.  We also expect to see strong demand for larger units.  There was only a handful of buildings above 100,000 sq ft as recently as ten years ago, whereas we’re now seeing considerable interest in units of 500,000 sq ft and above.”