Demand for grade A industrial space in the UK has notched up a record performance in the first half of the year, research from DTZ has revealed.
Grade A industrial space take-up totalled 8m sq ft in the first six months of 2014, up from 5.5m sq ft in the first half of 2013.
Total industrial space take-up reached 15.9m sq ft in the first-half of this year compared with 15.8m sq ft during the same period last year.
DTZ said supply of high-quality space was failing to keep pace with demand, pushing up rents and leading to developers building speculatively in several regions.
Build-to-suit space accounted for 65% of the grade A space taken, a trend DTZ expected to continue into 2015.
Some 5.2m sq ft had already been taken this year as build-to-suit projects, compared with 4.4m sq ft taken across the whole of 2013, it said.
DTZ recorded a resurgent retail sector in the first half, which had contributed about half of the total UK take-up of industrial property – the highest proportion the sector had taken since 2010 after four years of reduced take-up.
The logistics sector’s contribution dropped to 20.1% of take-up with requirements although DTZ expected this to resume growth “in due course”.
Rolling four-quarter investment volumes had reached £5.8bn over the past year, setting another record in the second quarter. Each of the past three quarters had produced record volumes using this aggregate measure, DTZ said.
Michael Green, research analyst at DTZ, said: “Industrial property is becoming increasingly attractive to investors as the economy continues to grow. Indeed, the 12 month total up to Q2 2014 saw an extra £2.5bn invested compared to the previous 12 months’ total.”
This influx of capital meant almost all regions exceeded their regional half-yearly average apart from Wales, Green said.
East Midlands was the standout performer in the second quarter with three separate deals of more than £50m which helped the region achieve its strongest quarter on record, he said.
“Total investment in East Midlands hit £438m in the first six months of 2014, ranking it second behind the combined total for London and South East. With money pouring into the regions, the yield gap compared to London is closing and will do for the rest of the year,” Green added.
Simon Lloyd, head of industrial and logistics at DTZ, said: “Grade A industrial space availability is lower than the long-term average across all regions. Rental growth was expected throughout the UK as a result, and regions with the largest deficit of good quality space would be first to see rental growth.
“Occupier confidence is increasingly in line with the UK’s economic recovery. Companies are looking to expand into newer, larger premises resulting in the primary market activity reaching these record levels,” he said.
Lloyd added that speculative development had returned as a direct consequence and it was particularly evident in London, the South East and the Midlands.
“Other regions are beginning to follow suit and most will host even more speculative development in the coming months to boost the availability of prime space and catch up with demand,” Lloyd said.