Knight Frank: Industrial demand continues to outpace supply

The agent said the volume of investment deals almost doubled in the second half of 2013 compared to the first six months, but supply of good large units is running out.

Investment transactions in the second half totalled £228.1m. These transactions included Standard Life's purchase and subsequent leaseback of Travis Perkins' new 631,000 sq ft distribution centre at Omega North in Warrington for £52.8m and Scottish Widows' purchase of Boulevard Industrial Park, a multi-let industrial estate in Speke for £37m from LaSalle Investment Management.

In the occupier market, the number of deals for units above 50,000 sq ft was down 32% on the first half of 2013. The steady erosion of good quality supply has left the region with only three available new build units over 50,000 sq ft, collectively totalling 440,000 sq ft. These are the two units at the recently completed Lancashire Business Park in Leyland, and one at Matrix Court in Chester.

There remains a high level of demand, with over 2m sq ft of unsatisfied requirements across the region. Notable firms actively seeking space in the North West currently include Amazon, The Hut Group, Northwood Paper and Ocado.

With good quality, existing supply becoming more restricted, design and build transactions are becoming more prevalent with pre-let agreements signed at several schemes in the second half of 2013. Dole Fresh UK is taking 61,000 sq ft at Barwood and L&G's M6 Epic; DHL have signed for 37,308 sq ft at MAG/Argent's Airport City and Johnson Controls acquired 150,000 sq ft at Marshalls CDP's scheme, The Hive.

The market is also currently experiencing an increase in freehold sales. Clarcor bought 151,769 sq ft at The Cube in Runcorn and Bee Works 126,480 sq ft in Oldham was sold to an owner occupier.

Rob Taylor, partner in Knight Frank's industrial team in Manchester said: "With the supply of good quality buildings expected to remain low, we anticipate design and build transactions to become more prevalent throughout 2014. Initial transactions at Logistics North, Airport City and M6 Epic are likely to provide the catalysts necessary for possible speculative development.

"As the supply of existing Grade A stock reduces further, incentive packages will continue to harden, along with increased upward pressure on headline rents, particularly in the 50,000 sq ft plus unit range.

"We expect investment activity to remain strong over 2014, as demand continues to spill over into the regions outside the South East."