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• Down 24% over last year compared to UK average of 19.6%
• Research reveals North-South divide in industrial property

The capital value of industrial properties in Greater London has fallen over 22% more than the average for industrial property across the UK over the last year, reveals the latest research from NB Real Estate, the leading commercial property agency.

According to NB Real Estate’s research, the capital value of industrial properties in Greater London has plummeted 24% over the last year to June 2009 while the value of industrial property fell by an average of just 19.6% across the UK as a whole. The South East and South West have also seen a considerable drop, with falls of 23.8% and 33.3% respectively.

NB Real Estate says that there has been a clear North-South dividing line in the performance of industrial property with the capital values of those in the South underperforming. The South as a whole has dropped 25% against the North of 16% (includes Wales & Scotland).

NB Real Estate says that, ahead of the credit crunch, the value of industrial property in London and the South East rose far faster than in the rest of the UK leaving stretched valuations far more vulnerable to a downturn in occupier and investor demand.

Change in the capital value of industrial properties by regions over the last year

Based on prime new warehouse units of c. 8,000 sqft with 50% site coverage as a minimum and 10% office content


Comments Andrew Smith, Director of Industrial Agency & Development at NB Real Estate: “The fact that industrial property is now faring better in the North is turning the North-South divide concept on its head.”

“The London market fell more spectacularly than elsewhere in the UK partly because it is subject to more speculation. Valuations became dependent on rising demand for freeholds driven by cheap credit and as credit as fell away prices came off very rapidly.”

According to IPD, the capital value of industrial property in London rose by approximately 60% between December 2000 and the peak of the market in June 2007 compared to an average rise of just 45% for the UK as a whole.

Says Andrew Smith: “The downturn in occupier demand has happened faster in London and the South of England. Industrial occupiers have more leeway than office or retail occupiers to locate their businesses on the basis of pricing than on location. So when the economy starts to look ropey they may cut rein back on taking space in more expensive locations.”

Andrew Smith adds that the success in the run up to the credit crunch of big name developers such as Brixton had a bandwagon effect and attracted a lot of smaller warehouse developers into London and the South. This, combined with easy access to credit, led to an oversupply of sheds, particularly in the Heathrow area.

NB Real Estate also explains that the transformation of former industrial estates in Central London areas into ‘infill’ residential properties led to a concentration of industrial developments into a small number of pockets such as Park Royal and Heathrow squeezing up prices.

The fall in rental values has been more contained

The South East registered the biggest decline of in rents (12.6% over last year to June 2009) whilst the UK average was down 8.4%. However, having avoided a speculative industrial property boom the fall in capital values of the region’s industrial property have been moderate. Rental values of industrial properties in London were down 10.9% over the same period.

Comments Andrew Smith: “Rents have remained relatively stable in part because the rental market’s cycle is lagging 12-18 months behind that of the capital value market. This means that the impact of the downturn hasn’t fully reflected on rental prices yet. In addition, rental values have been sustained by the shift in demand from freehold to leasehold.”

Change in the rental value of industrial properties by regions over the last year

Outlook for the UK industrial property market

Andrew Smith points out that although the industrial property market has seen a substantial drop, it has performed better than other areas of the commercial property market thanks to its defensive character.

According to the IDP UK property index, over the last 12 months total returns for both office and retail property have averaged -25.8% whilst for industrial property the fall was a more moderate -22.7%.

NB Real Estate says that it expects capital values for industrial property to stabilise further through 2009 but rental values will fall further.

Comments Andrew Smith: “Tenant incentives have become increasingly generous with large developers now offering tenant fit out options, rents at the same level as second hand space and flexible lease terms beyond anything that have been seen in the past. As tenant incentives reach their peak, rental values could fall by a further 10% to 20%.”

NB Real Estate points out that with 90% of the big distribution warehouse (100,000 sqft +) market being occupied by high street retailers, a prolonged slump in retail sales would have further negative repercussions on the industrial property market.

On the other hand, NB Real Estate says that ‘green’ industries and SMEs are areas of the market where demand is growing.

Andrew Smith says: “Businesses involving green technologies, sustainable energy and recycling are a segment of the market that is developing fast. However, green industry requirements are bespoke in many respects and existing stock has to be adapted to conform to statutory conditions.”

“In the SME market activity is more sustained, as small and medium companies are able to move faster to snap up competitive leasing terms that come onto the market, especially in areas where landlord’s offer greater discounts.”