DTZ: Supply shortage pushing up industrial rents

Manchester prime industrial is now the only UK market rated as 'hot' according to DTZ's Fair Value Index for investment values.

Bruce Poizer, senior investment director in Manchester, said: "The industrial market is often considered less attractive but has continued to deliver strong returns and will benefit from limited depreciation."

He added: "Manchester's other sectors have also fared well by comparison to many of the other regional centres. After a period of decline the forecasts for retail rental growth were the most positive for all the regional retail centres with an average growth of 3.2% predicted over the next five years. As a result, the retail markets remain 'warm', with total retail return predicted to be the highest in the UK at 8%, ahead of the West End of London."

Tony O'Keefe, director of DTZ's Manchester industrial team, said: "Much of the development overhang of Grade A industrial space from the last cycle has been removed and occupiers must either compromise their requirements or progress design and build options."

He continued: "The scarce availability of existing facilities has led a series of occupiers including Waitrose, Great Bear and Brake Brothers to take significant pre-let design and build units to satisfy their requirements over the past months. Limited availability of Grade A accommodation against a backdrop of continued occupier demand will influence rental growth in the coming years."

UK prime property markets now offer fewer attractive returns for investors than they did previously, DTZ said, the overall index score standing at 28 for Q1 2011 compared to 33 in Q4 2010.

The index monitors prices in 20 UK markets divided by city and sector.