As the economic recovery gathers strength in the Midlands, many industrial and warehouse occupiers are looking for larger premises to expand their operations. However, they are frequently held back by the lack of existing building supply and development land.
This is certainly the case in the Northamptonshire town of Wellingborough where the situation has led to hardening rents and reduced incentives, forcing occupiers to extend short term occupations in the hope that suitable long term options become available.
According to commercial property firm Prop-Search, which has one of its three offices in the town, ‘the toolbox is empty’ and there is no quick solution on the horizon.
“The problem is that companies looking to relocate and/or expand are often faced with compromise rather than the right solution,” says Director Simon Toseland (pictured).
“Taking property that is lower quality than they ideally want or need, property in the ‘wrong’ location or multiple properties – where one unit would be preferable.
“And compromising often means that the decision process becomes drawn out, leading to multiple occupiers all looking at the same properties and competing for them – hence the increase in rents and reduction of incentives.”
Of course, the obvious solution is to build more stock, but rising construction costs mean that when new build opportunities arise, the rental levels required to make the development viable are significantly higher than historic local averages.
Current rents for standard industrial units in the Wellingborough area are in the region of £4 to £6 per sq ft, depending on size, location and specification. The estimated rental value of new developments is £6.50 to £7.50 per sq ft.
This rebalancing of the market, following the recession-hit years of comparatively low rental growth, is good news for landlords – but it will take occupiers time to digest. The good news is that as new build values rise, so will those of the second-hand market, enabling companies to recoup value from the property they vacate.
Going forward, companies wishing to relocate will have to take what’s on offer, Prop-Search says – and on increasingly less generous terms than they have been accustomed to over the past few years.
So, as the UK heads towards deflation for the first time since the 1960s, it appears that investment in commercial property is, once again, a good bet, the firm concludes.
