High demand for industrial space leads to supply fears

● Urgent need for more speculative development ● But rental rates starting to plateau in recent months

Demand for industrial space in Scotland is continuing to outpace supply, driven by factors including strong activity levels among manufacturers benefiting from the continuing weakness in the pound.

Latest figures from property firm Colliers International found that in the third quarter of the year, supply of industrial space in Scotland has fallen to 15.9 million square feet, a drop of 46 per cent since 2010.

The vacancy rate has ticked up a little since the end of 2017 to 7.1 per cent, compared to the 2010 level of 14.6 per cent.

However, although Colliers found that in parts of England rental rates are experiencing double-digit growth, rentals in Scotland have plateaued slightly in the last few months, with large shed rentals remaining static and small sheds rentals decreasing slightly, by 1.25 per cent.

Iain Davidson, director of industrial and logistics at Colliers’ Glasgow office, said the market in Scotland continues to perform well.

“The Scottish industrial market is in good health and we have fortunately seen very little impact resulting from the wider political and Brexit uncertainty.

“While rental levels have dipped ever so slightly for small sheds and remained stationary for big sheds, it is important to remember that the preceding couple of years have seen record high rentals across Scotland, so we are still in a good place rental-wise.”

Davidson also said demand was being driven by a number of factors.

“Undeterred by Brexit and helped by the weaker pound, manufacturing companies are seeking space, while the online retail sector, transport, food & drink, and engineering are all fairly acquisitive.”

Although Uk-wide there are signs that speculative development of industrial buildings is picking up, Davidson says it remains limited in Scotland and needs to be addressed.

“In Scotland only 5 per cent of available stock is new or refurbished space. Many of today’s occupier requirements are driven by the desire to take modern, more efficient buildings. The development market, therefore, needs to start bringing forward more schemes, given the current limited development pipeline.”

Across the UK, Colliers found that high take-up levels mean there is just 1.5 months’ worth of supply of large speculative developments of over 100,000 sq ft.

Availability of large industrial space has fallen on average by 71 per cent in the last ten years.

Meanwhile, take up of industrial space over the 100,000 sq ft threshold has continued to rise year on year with 23 million sq ft transacted so far this year, up 3.7 per cent on the same period in 2017. Retailers and wholesalers accounted for just over half of all transactions in the sector this year.