Demand for good quality industrial space across Scotland has continued to increase significantly over the last five years, driven by the growth in online retail and logistics sectors.
However, in contrast to this growth in appetite from occupiers, we have also seen supply weakening across all size levels, particularly for good quality space that is ready to move into, which has restrained the market.
The rise in construction costs is severely hampering the ability of developers to commit to newbuild industrial schemes. In addition, the wait time for any newbuild stock that is coming through the pipeline is 12 to 24 months, creating a further issue in terms of available space.
So what is the answer to bridge the widening gap between supply and demand and provide a solution for occupiers who need quality stock sooner than it can be delivered?
Refurbishing and renovating older stock is not a new solution, but the way in which it is being viewed by the market, and indeed landlords, has undergone a fundamental shift over recent years.
The quality of refurbished industrial buildings across Scotland has progressed significantly and now offers a quick, effective, high-quality and permanent solution for occupiers that complements and competes with new stock coming through the pipeline.
The refurbishment route provides landlords with a huge opportunity to renovate dated stock that is currently vacant, inevitably improving take-up rates and also allowing rental growth.
However, the key is to ensure
that this refurbished stock is well located and best in class in order to offer an immediate yet long-term option for occupiers wanting new stock.
A prime example of this is Mileway’s Wardpark Industrial Estate in Cumbernauld, where Savills is joint adviser on the leasing of the estate.
When the leading pan-European last mile logistics real estate company acquired the 850,000sqft multi-let industrial estate in 2019, there was about 280,000sqft of dated, unrefurbished vacant stock that had low interest levels from prospective occupiers.
A comprehensive and ongoing refurbishment of all of the vacant units has changed that.
Mileway has seen renewed interest, higher demand and an increase in rental levels of the refurbished space.
Mileway is just one example and we are seeing landlords across Scotland recognise the opportunity to add value and appeal to their vacant units through first-class refurbishments and provide an option to satisfy some of the growing demand. As a result, we are seeing rental levels increase as well as incentives reducing.
Moving forward, the ideal solution is for quality refurbishments of industrial stock by landlords to continue and for the development of new industrial space to gain pace in order to ensure a sustained level of industrial space, particularly for larger units.
With the wider market challenges that are restricting new development, the industrial market will be heavily reliant on proactive asset owners to deliver high-quality refurbished opportunities.
Jonathon Webster is an industrial surveyor with Savills in Glasgow