George Osborne has introduced a number of planning amendments intended to stimulate the economy. These include:
• The Government will review the General Permitted Development Order by consulting on specific change of use measures, including greater flexibilities for change to residential use where there is little impact on local communities. The General Permitted Development Order will include consultation on creating a much wider 'retail' use class, excluding betting shops and payday loan shops. The proposed changes will come into force on April 6th 2014.
• The Government will launch a new Planning Court on 6 April 2014 to fast-track judicial reviews.
• The Government will continue to support Enterprise Zones by extending the availability of business rate discounts and Enhanced Capital Allowances by 3 years as an incentive for new and expanding businesses to locate there.
• The Government will form a dedicated Urban Development Corporation to drive forward the creation of Ebbsfleet Garden City, and will invest £200 million in infrastructure funding to kick start development.
• The Government will commit £100 million to Greater Cambridge until 2019-20 to support their ambitious transport and infrastructure proposals through a Gain Share mechanism.
• Total availability rate stands at 10% following quarterly take-up of 9.8 million sq ft
• 1.2 million sq ft of space currently being speculatively developed
• Further yield compression in prime investment market and investors accept greater risk levels
Large industrial space (50,000 sq ft plus) take-up during Q1 2014 was 30% higher than the previous quarter and 11% above the quarterly average since 2007, according to Gerald Eve’s latest Prime Logistics bulletin.
Total take-up for the quarter stood at 9.8 million sq ft, compared to 7.5 million sq ft during Q4 2013, with performance strongest in core locations such as the West Midlands and the South East, although most areas saw some uplift in take-up.
Retailers and manufacturers, together accounting for almost 60% of total take-up, were the sectors that continued to drive the market, and this is likely to continue given the ongoing expansion plans of companies such as Lidl and the continued strength of the automotive sector.
The overall availability rate ticked up slightly to 10% (from 9.8% at the end of 2013) as a result of the release back to the market of large buildings such as the one million sq ft ex-Tesco ‘Bigfoot’ shed in Daventry; but in reality supply remains at a very low level, particularly for high-quality stock.
It is this shortage of supply that has driven speculative development to a post-2007 high, with 1.2 million sq ft of such space across ten schemes currently under construction, all of which is in either the West Midlands or London / South East and is expected to complete by the end of the year. Occupiers are also reacting to the constrained supply by pre-leasing space, and there were 17 design-and-build schemes which started construction during Q1.
Steve Sharman of Gerald Eve’s research team said: “The recent strength of the large industrial occupier market continued in the first quarter – as evidenced by a positive performance across every indicator in all parts of the market – and this is now comfortably the best the market has looked since the downturn.
“And the signs are fairly clear that this will continue. The positive outlook for the sector is reflected by higher levels of development driven by pre-leases and, in the West Midlands and the South East at least, the return of significant speculative development.
“However, the relative shortage of space, particularly high-quality stock, remains a constraint on the market and although the upturn in the speculative development market is welcome, it will not be sufficient to relieve the latent demand in the market.”
Investment market
Investor appetite for industrial stock continues unabated, and as such prices are continuing to rise and prime yields nationwide have moved in by 75 basis points in the past year; in London and the Midlands, prime yields have moved even further, by up to 90 basis points.
The sector continues to be defined by a growing weight of money targeting a small and diminishing supply of suitable stock; fund allocations for industrial have been increasing, and even those investors who own suitable stock are reluctant to sell given the desire to be positive net investors in the sector.
Richard Ludlow, partner at Gerald Eve, adds: “Demand for suitable industrial stock continues to outstrip supply, and as a result not only are yields tightening but investors are increasingly amenable to greater levels of risk in search of returns. The outlook for the rest of 2014 is very much along this theme and we expect the improving occupational market to continue to feed through to the investment market.
“As more schemes, either speculative or design-and-build, complete, the market will be provided with more prime stock on which to trade, but at current levels this is unlikely to match demand. As such, we anticipate secondary to outperform prime over the medium term as the yield spread between the two narrows.”
First produced in 2006 (analysing the 2005 market), Gerald Eve’s Prime Logistics bulletin focuses solely on industrial warehouse properties of 50,000 sq ft or more in size.
The announcement of these monies supports the commitment made in the 2013 Infrastructure Announcement to eradicate the schools condition repair backlog and will enable further progress towards delivery of the recommendations of the James Review from 2011.
The money being released now also reflects the efficiency and speed with which the EFA is delivering the original PSBP programme. PSBP will repair 261 schools and the spend per school can be expected to be lower via PSBP2 as it is predominantly focussed on replacing single blocks and so it could be that another 500 or more schools in England will be repaired.
A particular feature of the new programme is that it will allow condition issues to be addressed at schools that are also receiving separate funding for expansion in school places. The potential to join up funding streams into combined projects will allow real efficiencies in project delivery.
We anticipate that applicants will have to submit their own evidence of the condition of their school buildings. As applications for funding have to be made by the Summer break they may need to commission surveys and advisors to support their submissions very quickly. The available funding for the new Academies Capital Maintenance Fund projects that were announced this week was over-subscribed by four times and competition for PSBP2 may be at least as fierce. Schools and other Responsible Bodies will need to submit strong and well evidenced applications in order to be successful.
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