JLL forecasts above average shed take-up

Jones Lang LaSalle's latest industrial research showed that 1.1m sq ft of deals was completed in the North West during the first three quarters of the year with a further 1m sq ft in solicitors' hands.

JLL said the year started slowly but there has been an acceleration of activity across the sector in recent months. Around 450,000 sq ft of large warehouse space was leased in the region in the third quarter of 2009 compared to 650,000 sq ft in the previous two quarters put together.

Stuart Mair, associate director in Jones Lang LaSalle's logistics team in Manchester, said: "Traditionally one of the more active leasing markets in the country, logistics take-up for 100,000 sq ft-plus units in the North West was subdued during the first half of the year although following an increase in activity in quarter three total take-up now stands at 1.1m sq ft."

He continued: "The North West logistics occupier market is currently driven by rationalisation and cost reduction as well as re-negotiation of existing lease terms. With a further 1m sq ft of requirements currently in lawyers' hands we could see 2009 take-up finishing well over the ten year average of circa 1.88m sq ft."

Jones Lang LaSalle's findings also shows that following healthy levels of speculative development in the North West over the last five years, only 325,000 sq ft of new industrial/warehouse space was brought to the market by the end June 2009. Following decreasing occupier demand and rising vacancy rates, just 360,000 sq ft of space is currently under construction in the region. Virtually all developers have put on hold all future speculative projects which had not already started construction by the beginning of 2009 and under current market conditions no new construction in the region is anticipated in 2010.

JLL expects new deals will be delivered on a bespoke design and build basis only over the next 12-18 months.

Rental levels in the North West have proved relatively resilient with prime rents remaining around the £5.85/sq ft mark in Manchester, £5.25/sq ft in Liverpool, and £5.75/sq ft in Warrington. There does however continue to be strong pressure on landlords. Rising vacancy rates, as well as increasing requirements for lease renegotiations from occupiers struggling to afford high rental levels, is driving the competition between landlords. The battle to attract tenants has led to highly competitive incentive packages, which today can reach up to 24 months free rent period. Additionally, lease terms, especially lease length, are becoming increasingly flexible.

Mair concluded: "Looking ahead over the short term, despite the overall reluctance to commit to new leases, the feared exodus from occupied space has so far not happened. We are now beginning to see a growth in optimism amongst occupiers and new lease contracts will be driven by network consolidation and strive for cost reductions, plus some growing markets such as Internet retailing and waste recycling. However, these first tentative signs of a stabilising market are not anticipated to lead to a significant overall increase in take-up over the short term."

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