By Haydn Thomas, director, Hutchings and Thomas chartered surveyors, Newport

 

A lack of quality industrial stock has the potential to cause a very major headache if demand for all kinds of commercial property continues to increase.

Demand for industrial units, between 3,000 and 5, 000 sq ft, has been sustained even, to a degree, during the economic downturn mainly in south east Wales and along the M4.

We’ve seen strong signs that owner occupier demand is beginning to increase on the back of a marked improvement of activity in the manufacturing sector and an overall general improvement economic activity.

However these local green shoots could wither and potentially die and even pop up further down the M4 corridor and other parts of the UK, if the lack of supply of units between 3,000 to 5,000 sq ft persists and there is a lack of availability of units of 1000 sq ft.

Meanwhile capital values for industrial buildings have remained fairly buoyant in some areas in particular south east Wales.

The ubiquitous and pressing question which is most people’s lips but few seem able to answer is if the economic upturn which is widely predicted and which we are seeing evidence of, does indeed happen from where exactly is the required increase in units, supply side, going to come?

In years gone by the lamented Welsh Development Agency were the drivers of industrial development. The units they built across Wales remain as testament to their foresight and are some of the best quality still available today.

However the WDA curtailed their speculative development in the early 1990s, although they did continue bespoke developments after this time. The big question and the challenge that is thrown out to the private sector is, are they willing or indeed able and do they have the wherewithal and the appetite to take up the slack and bridge the arching disparity in demand and supply?

There are some speculative private sector industrial developments being undertaken in the area although these are few and far between and are normally self-funded.

Private sector developer confidence is still low and this, linked with high development costs and persistent lack of bank lending for such developments leads us to believe the situation is not going to change soon.

Any private sector development is driven by return and also keeping costs to a minimum. Is, taking that equation into account, the quality of the new build good enough to attract the high value, value added calibre of occupant we need to draw in to this area?

Can the Welsh Assembly Government assist the private sector and seize the initiative in attracting and keeping industrial occupiers to the region? Can the Welsh Government start building again?

If the current supply/demand situation remains then this could have an inflationary effect on both rents and capital values. It may only be at this point that private development is triggered.

A downside of the imposition of rates on empty industrial properties is that it has had a marked and deeply detrimental effect on the psyche of industrial owners who, in their droves, have decided not to undertake any speculative development without the comfort and security of a pre let in place. This has also affected the purchase market where investors, who would normally look to acquire industrial accommodation, are reluctant to do so unless the property is let and is income producing.