Northern Industrial Market

Ceara Duggan
Senior Surveyor, Commercial Valuation

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The Northern Industrial Sector Update

The industrial sector continues to perform compared to other asset classes and has generally shown resilience in the recent turbulent times. The market has shown significant momentum, supported by strong occupier demand in key cities such as Manchester, Leeds, Sheffield and Newcastle with prime rents showing strong growth levels across most key areas. Markets showed improved levels of activity in 2024, with higher volumes of transactions in both the occupier and investment markets. Annual investment volumes were 29% higher than in 2023, while occupier take up was 20% up year-on-year.

Industrial and logistics accounted for 33% of the combined volume across the UK’s three core commercial sectors in 2024, significantly ahead of the long-run annual average of 19%. Tellingly, industrial volume also ran ahead of offices for the first time ever in 2024, reflecting comparatively weak investor sentiment in that sector.

While there has been a general slowdown in the occupier demand, demand for high quality, well located assets continues to drive rents and the agreed terms, especially for assets that are ESG compliant which is a must for most regional / national occupiers.

Here’s an overview of mid to large box (<100,000 sqft) prime industrial rents across major northern cities:

Who is Buying What and For How Much?

Despite the strength in its occupier markets, transactional volumes remain relatively low although this is more likely down to existing owners been reluctant to dispose of key assets in the current climate of high interest rates and prolonged macroeconomic uncertainty.  

Industrial remains to be the asset class of choice for many and multi-let industrial estates in particular have been a rare occurrence in recent years, but they remain to be on the top of the shopping list for most prospective investors and strong benchmark pricing has been achieved on those schemes that do come to market. 

With the prospect of a more (relatively) stable and certain outlook, reducing interest rates and improving overall confidence, the big question is how the industrial occupier markets will fare, and whether sellers will be tempted back to the market as pricing makes it more attractive to do so.

Recent deals show a strengthening of appetite and pricing in the sector. We’re aware of a warehouse unit in a prime distribution location on the M62 corridor in West Yorkshire, that when launched originally in H2 2023, the interest was 6%+ and there has now been interest in Q3 2024, at the guide price of 5.73%, a swing of at least 25 bps which is a clear indicator of improving pricing over the period of 6 months.

A prime unit may comprise of the following;

• A high quality and well located asset
• Long let (15 – 20 years) to a good to strong covenant including OMRRs
• ESG compliant which is critical for long term growth

Some may take caution from the above re-pricing and softening of yields over a period of 2 years, most of which took effect in an alarmingly short period of time post Liz Truss budget in September 2022. However, any value lost in the clear yield shift has generally been recouped from the rental growth experienced in the respective markets. 

When we’re valuing industrial assets, we tend to find that tenancies entered into 12, even 6 months ago are now out of date and reversionary with landlords keen to push rents while competing supply remains limited.  

With rents growing at such a pace, many industrial owners have been relatively unscathed from drops in values as seem in other sectors of commercial real estate. 

With a realistic hat on, there are potential speed bumps on the horizon and the sector faces several challenges, including high interest rates that may ease but still constrain financing for new developments. Geopolitical uncertainties, such as the Ukraine-Russia war and the Middle East tensions, could disrupt supply chains and increase costs. Labour shortages and wage inflation remain concerns, pushing businesses towards automation and efficiency measures. Shifting market dynamics, including a slowdown in e-commerce growth, may impact demand for logistics and warehouse space, particularly for older assets. Additionally, volatile energy costs and stricter sustainability regulations will require significant investment in green infrastructure.

Key Takeaways

• Investor demand is for the strongest prime assets and those with short term value add opportunities. Appetite dwindles for secondary / older stock, although there are certainly still buyers for these, albeit at more discounted pricing.
• Appetite for modern Grade A space continues but limited occupier choice in the best stock has seen a high proportion of demand being facilitated by space within Grade B buildings as the ‘next best’.
• New build development in the speedy hike in interest rates almost came to a standstill, as proposed schemes were no longer deemed viable when factoring in increasing build costs, cost of finance together with re-pricing across the sector. While completions of big boxes in particular that were already under construction have come about, there is a higher proportion of these that are without a pre-let and remain vacant.
• Occupier demand for buildings that are specified to a high standard, and especially those newly or redeveloped schemes that provide strong ESG credentials and low carbon footprints continue to be highly sought after and are now a pre-requisite for any proposed development in order to secure the best quality tenant on the best terms.
• Competition for good quality existing and new build product has helped maintain upward pressure on rental growth, and ultimately helps bring secondary rents on an upwards trajectory along with it.

About Ceara

Having joined Allsop in mid-2022, Ceara is based in the firms Leeds office and has expanded the Commercial Valuation team in the North and provided much needed resource to help service our workload. Coming from a background of landlord and tenant, lease renewals and rent reviews, the move into valuation across all main asset classes was the clear next route. 

Since joining Allsop, Ceara has set up regular Allsop events alongside another colleague which is aimed at professionals who are in the earlier to mid stages of their careers and are looking to build a networking platform. 

While Ceara has worked on and valued assets across all classes since joining, she has recently worked on a mixture of regionally significantly multi-let industrial estates and several large retail warehouses throughout the region, while one of the more specialist assets includes a new build development site for a prime drive thru and petrol filling station in West Yorkshire. 

Ceara has particularly enjoyed working on a shopping centre in Newcastle for one of our largest clients which was part of a wider portfolio.

Would you like some valuation advice?

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