Simon Hill is Director at Colliers and joint agent on Integra 61 with Avison Young

The North East’s economic drivers include advanced manufacturing, renewables, offshore and petrochemicals. These sectors have once again driven industrial take-up in the region over the past year. Take-up activity, for units of 50,000+ sq ft, reached  1.2m sq ft in 2023, a drop of 64% year on year. In total, 8 deals transacted last year, compared to 15 in 2022. Lettings slowed in 2023 as occupiers held off making any firm property commitments due to the challenging economic headwinds.

Industrial vacancies across the North East rose to 2.5m sq ft equating to a vacancy rate of  2.5% and being slightly higher than a year ago but remaining near record lows following multiple years of positive take-up.

Much of the built industrial stock that is available in the North East is secondary in nature and in need of modernisation. The North East of England has some of the UK’s oldest warehouse stock with c. 75% of industrial buildings being constructed in the 20^th century. The exception to this rule is the recent developed speculative stock including the Connect scheme at Integra 61 providing 640,000 sq ft across five new units.

Due to the outward yield shift we do not anticipate any other development coming off the ground for the foreseeable future providing few options for businesses seeking new and modern warehouse space, albeit we do anticipate some additional second hand stock returning to the market. Therefore, as more deals are agreed in 2024, the supply/demand balance will find its equilibrium.

Prime industrial rents in the region are £7.50 per sq ft. Average industrial rent growth across the board have eased in recent months following several years of exceptional growth. Rental growth in the North East remains relatively stable at 3.0% and is likely to track this figure in 2024.

Looking ahead to 2024, we anticipate an improving market as interest rates are expected to be cut towards the middle of the year and real wages have started to increase. It is widely expected that CPI inflation will fall below the Bank of England’s 2% target by the middle of the year because of favourable base effects and the anticipated fall in the utility price cap.

We are making the following predictions as we look forward to 2024:

• Take-up in 2024 is forecasted to remain in line with last year’s activity.
• Speculative development is to slow dramatically. As a result, we are forecasting prime availability to contract significantly over the next 12 months.
• UK rental growth is forecasted to reach 3.7% in 2024. The industrial sector will outperform any other commercial real estate sector to 2028 (4.0%).
• As the cost of borrowing eases in the second half of the year, increased commercial tension will drive values higher toward the end of 2024.