Multi-let industrial units are in high demand according to the latest insight from CoStar, if the length of void periods (the time a building stays empty after practical completion) is anything to go by.
These have fallen to a record low of 6.3 months, underlining the subsector’s resilience in the current subdued economic climate.
The median average void period stood at more than seven months in early 2022 and nearly 11 months three years ago. The figure has been as high as 15 months within the past decade.
A similar pattern can be seen across most regions, with the shortening of void periods particularly pronounced in areas with limited speculative development.
Grant Lonsdale, Director of Market Analytics at CoStar said: “Unlike in the office sector, in which tenants are largely pivoting towards the newest buildings which is pushing up voids in older stock, there is little correlation between the age of a multi-let industrial building and the amount of time units spend vacant. Indeed, void periods are actually slightly lower in multi-let industrial properties delivered last century than those completed this century.”
In contrast, void periods have lengthened slightly in London, the West Midlands, and Yorkshire and the Humber in recent months, partly because rising supply is affording tenants more choice. The amount of time units lie empty in these areas nevertheless remains historically low.
Active players in the subsector such as Industrials REIT, which is being taken private by Blackstone, often cite its low obsolescence risk, and therefore relatively lower ongoing capital expenditure requirements, as a major draw.
Another favourable factor is its varied demand base, roughly evenly split between retail and logistics occupiers, manufacturing and engineering firms, and a range of other companies such as leisure operators and document storage businesses.
By way of comparison, around two thirds of demand for single-tenant big box distribution warehouses is linked to retail and logistics, with big box void periods now rising as high inflation squeezes consumers’ buying power.
The time multi-let industrial units spend untenanted should be kept in check by limited new development. While stock levels have increased in some regions, the 4 million ft² of multi-let industrial space underway nationwide represents less than 5% of the UK’s industrial construction pipeline.
High build costs and multi-let developers lacking the economies of scale enjoyed by big box specialists likes Panattoni, Segro, and Tritax makes a change in dynamic unlikely, ultimately benefitting owners of existing multi-let industrial buildings and the rents they can command.
