2012 – What the numbers are telling us?

We have now finalised our 2012 numbers for the UK ‘Big Box’ market.  I think it is fair to say that the level of take-up over the year was disappointing and below the expectations we had at the start of the year.

This was largely because occupier activity got off to such a slow start.  Indeed, in the first six months of the year, when the economy contracted, just over 4 million sq ft of Grade A logistics space involving units of 100,000 sq ft and over was taken up. This was, the lowest half-yearly total recorded over the past six years (2007-2012).  Although demand picked up in the second half of the year, it was not enough to counteract this poor start. Over the year as a whole only 11.9 million sq ft was taken up, underperforming 2011 by 9%.

However, although demand was subdued, available supply fell.  At the end of last year, supply was 15% lower than it was six months previously.  The amount of new floorspace involving units of 100,000 sq ft and over was at an all-time low, with just 8.3 million sq ft available.

At the start of 2013, there are some signs that the market is starting to improve, albeit at a tentative pace. There are several big enquiries in the market, some at an advanced stage.  In addition, there are two units each totalling 166,000 sq ft that are speculatively under construction in the UK at Lancashire Business Park.  These are being built after a fire destroyed a unit totalling 450,000 sq ft on the estate in 2011.  These two units are the largest industrial/logistics units to be built in the UK since the onset of the recession.   Along with these, a few developers are considering building speculatively due to the lack of Grade A supply currently in the market.  But even with these intentions, it may not necessarily happen.  Recently there a have been a few examples where developers considered sites for speculative development but actually secured pre-lets before proceeding.

We don’t expect 2013 to see a huge bounce back in demand, in part because the economy is expected to grow only modestly at best.  However,  with a good level of market activity recorded in January so far and a number of big retailers expected to take large units this year, towards the end of the year we can expect to see an upturn in demand and that, as a result, 2013 will see a higher level of take-up than 2012.