UK Industrial Property Market – When will the rent increases end?

Despite Brexit, Covid and the Ukraine situation we have just witnessed another record year across the country in 2021 for the industrial property market, with occupational take-up surpassing 50 million sq. ft for the second year running.

Soaring demand fuelled by retailers, last mile logistics on shoring together with supply chain issues has meant that requirement levels are not falling. Vacancy levels for much of the South East remain low with research suggesting at record levels below 3%.

The supply of industrial stock remains low and despite a 20-30% increase in build costs, investors and developers have pushed the button on speculative new build schemes. However, with only a forecasted 18million sq. ft predicted to come to market in 2022 and much of this pre-let, this is unlikely to satisfy demand.

The inevitable result of this supply/demand imbalance is increasing rental levels. Whilst initially this was focussed on London, South-East and traditional distribution locations, the ripple effect is now impacting rents across the whole of the UK as tenants look further afield to find cheaper rents.

Significant pressure on rents is likely to continue throughout 2022 and many occupiers are getting a shock when it comes to their rent review or lease renewal with Landlords seeking increases of in excess of 50% on rents agreed 5 years previously.

It has been apparent that Landlords have been keen to secure ‘record’ headline rents and it has been necessary to negotiate more creative deals with rent increases offset by differing lease terms, rent free periods and other incentives.

During the past 12 months, our Industrial team have continued to assist and mitigate rent increases for our clients. Here are some recent deals we have been involved with:-

• Banbury – Agreed lease renewal on 25,000sq.ft at £7.50/sq. ft with 6 months rent free and 5th year tenant break.
• Biggleswade – Agreed lease renewal on 25,000sq.ft on a 5 year lease at a stepped rent starting at £6.50/sq. ft with a write off of back rent owed.
• Basildon – Agreed new lease on two units totalling 24,000sq. ft at £8.50/sq. ft with 6 months rent free and a tenant break at 6th year.
• Milton Keynes – Agreed rent review on small industrial unit which represented a 19% increase in previous passing rent against Landlords original proposal of a 40% increase.

We are here to help – please do not hesitate to contact Mark Short, Paul Wise, Tom Warren or Oli Hartley in our Commercial team. 0207 637 7554 or mark.short@dvcommercial.co.uk