When rents start to increase landlords generally start to feel happier(!) – viewing the increase as a signal that the market is improving (although, of course, the same cannot be said for occupiers…). I have, for some time, been expecting industrial rents in the UK to start rising. This has now been confirmed by JLL’s latest in-house data on UK prime rents which indicates clear rises across the board – which will delight any landlord reading this!
Our findings are also corroborated by IPD. According to their monthly index all industrial rents rose 2.17% over the 12 month period to August 2014. This is favourable compared to a year ago when industrial rents fell 0.05% over the 12 months to August 2013. In addition to this, the IPD quarterly index at Q2 2014 showed that all industrial rents have risen for the last four consecutive quarters.
So my expectations have been met. Why? Well, the economy has improved and continues to show signs of further growth. This has fuelled improving occupier confidence and has led to a pick-up in demand for warehouse space. However, supply of good quality ‘kit’ is tight and there is simply not enough new stock coming out of the ground to replenish this –something we have highlighted in our latest Western Corridor report, for example. More broadly, at the peak of the market in 2007 there was around 15 million sq ft of industrial floorspace speculatively under construction in the UK but our current estimates point to just over 3 million sq ft under construction today.
Now that industrial rents have risen, the next big question is whether this will continue over the next few years? I believe they will. JLL forecast that all industrial rents across the UK will rise 2.2% pa over the five-year period 2014-2018, with distribution rents rising 1.7% pa and standard industrial rents rising 2.2% pa. Clearly some locations will exceed this market average, whilst others will lag behind.
So to summarise, industrial market conditions for landlords have improved and I believe this will continue given current supply and demand dynamics and the time lag for new developments to emerge. In my opinion it’s a good time for investors/developers to build some new stock in the right locations and capitalise on these rising rents!