Sustained by a stronger than expected global economic recovery, the UK large sheds real estate market saw a turnaround in occupier activity in 2010. Take-up volumes rocketed to a 10-year high. However, significant uncertainty surrounds the pace of recovery in 2011. Spending cuts in the UK and austerity programmes across Europe are seen as major threats as they could dampen exports. Recent social unrest in the Middle East and North Africa and the tragic natural disaster in Japan are adding more uncertainty.

The strong rebound in occupier demand in 2010 was largely motivated by demand held back during the global financial crisis. So, what level of occupier activity can we expect in 2011? While network alignment, and consequently upgrading to modern floorspace, will remain high on the agenda of occupiers over the coming years, the majority of activity will be driven by lease events and will slow in 2011 because:

1. Demand that was held back during the financial crisis has, to a certain extend, been satisfied during 2010.
2. Weakening global economic growth and supply chain uncertainty will limit floorspace expansion.
3. A leasing market returning in favour of landlords due to shrinking modern supply levels.

Floorspace expansion is predicted to be mainly driven by ongoing growth in internet retailing and more space being taken by companies active in the alternative energy and recycling sectors. Furthermore, occupier focus will remain on modern supply in markets with a direct connection to the core national transport network and therefore favour the UK’s traditional transport hubs. Dwindling modern supply – with only around three million sq ft of existing large modern units available on the market at the beginning of 2011 – will further push floorspace taken in design-build units in 2011. Encouragingly, a generally improving equity situation is likely to lead to the tentative return of speculative development during mid/late 2011 but only in the more traditional market locations.

Nevertheless, occupier demand for large modern units is likely to exceed supply in this category and this will add upward pressure on rental values throughout 2011. If you want to read more about the large sheds market in the UK check out our most recent UK Industrial and Logistics Market Report.