Experts at Colliers International say strong underlying demand will re-appear in 2020
Transactions of Scottish industrial property should bounce back this year as demand pent up during an uncertain 2019 reasserts itself, Colliers International predicts.
The firm’s Annual Scottish Industrial Trend Tracker recorded 17% growth in floor space transactions across Greater Glasgow in 2019, but at 3.2 million square feet the total was still 7% below the five-year average. In the East, volumes were 4% lower year on year, at 1m sq ft.
Scotland as a whole saw take-up of 5.2m sq ft in 2019, which reflected a slight reduction of 3.2% on 2018’s activity of 5.4m sq ft. Compared to the five-year average, it was down 10.2%.
However, Iain Davidson, Director of Industrial & Logistics at Colliers International’s Glasgow office, said suppressed demand should ensure a bounce in 2020.
“In a supply-constrained environment, Brexit uncertainty and a lack of Grade A stock impacted activity in 2019. The Scottish market will see a pick-up in demand and transaction levels in 2020,” he said. “While those figures seem to suggest a loss of occupier appetite, which there definitely was due to Brexit uncertainty, the lack of available stock has also been a key factor in this slower performance. There are a number of unsatisfied requirements due to dearth of suitable buildings.”
The last few years have seen steady rental growth across all size bands as demand outstripped supply. Prime rents in 2019 remained stable in the West of Scotland. However, Davidson expects that robust demand, limited supply and deals on new product will contribute to support upward pressure on rents this year.
In terms of development pipeline, Colliers estimate that just over 400,000 sq ft is currently planned over the next 12-18 months on a speculative basis across the whole of Greater Glasgow. “Put into context, this represents only 1.5 months’ take-up, based on the five-year take-up average of 3.2m sq ft. While welcome, this is insufficient to meet demand in the short-medium term,” said Davidson.
Going forward Colliers expect to see larger requirements being primarily satisfied on a Build to Suit basis.
Davidson commented: “Take-up doesn’t justify speculatively developing 50,000 sq ft plus buildings to any great extent. Moreover, these larger requirements are becoming more bespoke in terms of design, specification and low site coverage, something that the development market would be unwise to second-guess on a speculative basis”.
In the East of Scotland, activity at the larger end of the market was dominated by sales, with purchasers taking advantage of favourable pricing. Sectorally, demand largely reflected trends in the West.
Lewis Pentland, Associate Director at Colliers’ Edinburgh office, said: “Despite the slight drop in take-up last year, we recorded more enquiries in 2019 than we did the year before. Given the time lag from enquiry to done deal, we anticipate this having a positive impact on 2020 take-up.
“The bias seems to have been for good quality refurbished space. The question is whether there will be a sufficient supply of quality stock to cater for demand, and the impact of Brexit.”