Property still sound despite credit crunch

Jan 9 2008 by Graeme King, The Journal

Industrial market remains strong

GENERALLY the industrial and warehouse market within the North-East area has remained strong, despite worsening economic factors and increased interest rates.

As a region, it is outperforming many other areas of the UK in terms of manufacturing productivity.

Within the property sector, both investors and developers are showing an increasing appetite for sites and premises in the region partly as a result of the performance indicators and also the higher returns which the area has historically delivered and the perception that there is greater potential for rental growth within the region.

Knight Frank’s industrial database for the region shows requirement for 2006 of almost 5million sq ft, made up of 481 requirements at an average of 10,400sq ft. The 2007 figures showed 7.5million sq ft, comprising 442 enquiries at an average of 17,000 sq ft.

The Tyne and Wear area has the bulk of demand, with Team Valley Trading Estate generally proving to be the most popular despite increasing A1 traffic problems and the attentions of the Highways Agency which has brought about a virtual moratorium on new schemes. The position in areas to the south of Gateshead, such as Washington, is little better.

So there is now pent-up demand for new and modern units in particular, largely from companies already in the town and seeking to either expand or, more often, modernise their facilities.

To underline this, we are shortly to see the first major redevelopment of a factory site in the town with the acquisition by Highbridge Properties of the Dunlop/Goodyear premises at Wear Industrial Estate, and it is understood the site will be used for large footprint industrial/warehouse units.

Nissan has also disposed of over 40 acres of land between its test track and the A1231 to Clugston Developments.

In the region there are currently 201 new units either with planning consent, under construction or immediately available providing a total of 3,440,310 sq ft. Current rental levels vary depending upon the size, but in general terms vary from approximately £4.25-£4.50 per sq ft for 100,000sq ft plus units up to £6 to £6.50 per sq ft for smaller units down to 5,000sq ft. Higher rents are being obtained on trade parks, but these generally reflect the more prominent nature of the schemes and they vary from between £7 and £8.75 per sq ft.

Capital values have seen significant growth in the last two years, largely influenced by low borrowing costs and greater demand from owner occupiers, now typically varying between £60 and £75 per sq ft.

So the North-East industrial/warehouse market is still performing well and, certainly within the Tyne and Wear area, demand for new and modern premises greatly outstrips supply.

This has resulted in significant lift in capital values during the last two years and latterly rental values have also moved on, but not to the same extent. There are, therefore, some grounds for optimism in a generally gloomy property market.

Simon Haggie is a partner specialising in industrial property at Knight Frank in Newcastle