According to Colliers International’s latest research.
Scotland's industrial and logistics commercial property market was in good shape before the COVID-19 lockdown and should recover when some normality returns, according to a new survey.
The latest industrial and logistics research from property and investment firm Colliers International on the first quarter of 2020 covers both the west and east of central Scotland.
Colliers describes the west of the country - Scotland’s largest industrial market, accounting for 63% of take-up last year - as being in “reasonably good shape” before the coronavirus pandemic.
It says that tightening supply, with 6.5% availability, along with robust demand and limited development have resulted in rental growth over the last few years.
Iain Davidson, director of Industrial & Logistics at Colliers International in Glasgow, said: “It’s fair to say most people came into 2020 relatively optimistic about the year ahead, off the back of December’s election result and more clarity regarding Brexit. But then COVID-19 hit and social distancing is clearly having an unprecedented economic impact.”
He believes that post-lockdown the west of Scotland has experienced a tale of two markets, with the larger 30,000 square feet-plus sector faring better than the small and medium sub-30,000 sq ft size range.
Colliers' research reveals that, contrary to historic trends, the larger sector seems to be faring significantly better than that for smaller units. New enquiries for sub-30,000 sq ft units have all but ground to a halt, particularly sub-10,000 sq ft, as small and medium space occupiers are focused on the business challenges resulting from the pandemic.
Mr Davidson added: “The majority of new small lettings that were pending prior to the outbreak have been paused, rather than cancelled. Postponements range from between two to six months and landlords have, in the main, accepted these delays under the circumstances.”
In contrast, Colliers finds that the larger end of the market is holding up relatively well in the west with three 50,000 sq ft-plus deals completed during lockdown, totalling 250,000 sq ft. Another two buildings, totalling 100,000 sq ft, have recently gone under offer.
A feature of the last four to six weeks has been a demand for new short-term storage requirements related to COVID-19 to house such items as healthcare equipment, personal protective equipment (PPE), surplus retail stock or manufacturing components.
According to Colliers, while enquiry volumes are down in the west, requirements that have come to market recently seem genuine and immediate. It has seen active interest in many of its larger properties, which include 85% of available floorspace at Scotland’s premier big box distribution park, Eurocentral.
However, several occupiers are looking to re-negotiate terms and while headline rents are holding up, incentives are in some cases increasingly slightly.
Mr Davidson added: “Assuming we get back to some semblance of normality relatively quickly, I believe the industrial sector will weather the storm in the short term and show resilience in the medium to longer term.
“The sector is likely to be a beneficiary of current events due to an acceleration of consumer behaviour further towards on-line retail and changes in supply chain strategies to more localised production and storage.”
The east of Central Scotland mirrors a lot of what is happening in the west, according to Lewis Pentland, associate director of Industrial & Logistics at Colliers International in Edinburgh.
He explained: “The supply statistics largely reflect that of the west and we have witnessed similar rental growth over the last few years. One difference to note is the level of activity below 10,000 sq ft, which we found made up 90% of lettings in the east in 2019.”
Colliers noted that, apart from a handful of lettings over 20,000 sq ft, activity at the larger end of the market was dominated by sales to owner occupiers. Prior to the lockdown, it was seeing an uptake of enquires in sites from occupiers seeking to build their own units in the absence of suitable leasehold stock.
A positive development is the letting of a refurbished 49,000 sq ft distribution unit at Edinburgh Distribution Park in Newbridge to Tennent Caledonian, on behalf of IPIF, on a straight ten-year lease at £6 per square foot.
As in the west, at the smaller end of the market, most occupiers are waiting to see how the COVID-19 pandemic unfolds, with the majority of lettings being put on hold rather than cancelled.
In the larger end of the sector in the east, Colliers saw a 200,000 sq ft sale go under offer before the lockdown, which should complete shortly.
Mr Pentland added: “I believe we’re reasonably well placed to weather this storm given the strength of our market before COVID-19, coupled with the nature of the businesses which many of our occupiers are in.”