Pictured above: Helen Longstaffe, Director, Business Space at DTZ in Nottingham

Letting activity in UK the industrial market increased 800,000 sq ft to 6.9 m sq ft in the first quarter of 2011, according to DTZ Research's Property Times UK Industrial report, which covers the market for properties over 50,000 sq ft. 

Despite the increase in activity, overall take-up was down from the 7.3m sq ft seen in Q1 2010. The report revealed that retailers and manufacturers dominated the take-up of industrial space during the quarter, accounting for over 90% of all activity.

DTZ Research's report also concluded that the total availability of industrial space fell to circa 182m sq ft at the end of the quarter whilst grade A stock continued to fall,  reflecting the continuing absence of newly built supply. Secondary grade space saw the largest reduction during the quarter, falling by around 6m sq ft, largely due to the lack of availability of grade A buildings. 

The trend tor consolidated national distribution hubs witnessed in 2010 continued into 2011, especially in the North West and Yorkshire & Humberside. Activity was also driven by favourable exchange rates which helped boost the export orientated manufacturing sector, with many businesses taking the opportunity to expand their operations. 

There were also some early signs of recovery during the quarter as both Northampton and Dartford recorded small levels of rental growth, although the general consensus is for a stable rental outlook.

Pictured above: Philip Glenn, Head of DTZ's Nottingham office

Helen Longstaffe, Director, Business Space at DTZ in Nottingham, said: "The report is further evidence of the market trend first noted during 2010, the reducing availability of good quality buildings in many parts of the UK. Indeed, the shortage is now evident in most parts of the country. Occupiers are now entering into build to suit projects which will be tailor made for their operations, but will not be available on attractive terms in the same way as those on existing building stock. Again, the principal demand is coming from food retailers, discount retailers and internet-based operators, although encouragingly, there are also some manufacturing companies in the mix."

Letting activity in the East Midlands recovered during the first quarter with circa 1.2m sq ft let. This was dominated by smaller buildings with the 50,000-100,000 sq ft size range most active. New supply remains limited and as a result, most stock coming on to the market is of grade B quality. 

Philip Glenn, Head of DTZ's Nottingham office, added: "Our research shows clearly that there remains a two tier market with the prime sector still holding up reasonably well and the secondary sector continuing to struggle. However better secondary stock may experience improved demand as a result of falling availability of Prime property and low development activity. This may not be enough however to have a big impact on the gap in values between prime and secondary in the short term"

Investment activity fell during Q1 2011 to £562m from the £1,005m witnessed in Q4 2010. Property companies and private property vehicles continued to dominate investment activity accounting for 75% of all purchases. 

Martin Davis, Head of UK Research at DTZ, observed that: "Continual erosion of stock, combined with an extended period of limited construction, has resulted in a measure of balance between supply and demand. Early signs of hardening incentives in some markets are providing an early indication that negotiating power will soon be transferring to landlords."