Throughout 2020, we witnessed a continued rise in demand for industrial space in Reading, driven by the impact of the pandemic and Brexit.
More online shopping led to a spike in warehouse demand, but we also saw an increase in enquiries from high tech, R&D and life sciences firms, as well as film production companies like Blackhall Studios and Pip Studios, the latter of which we acted for, who continued their exodus out of West London.
As 2020 ended, the effects of Brexit began to be felt on supply chains, and many businesses across the Thames Valley began building up their inventories, ending the year on an industrial demand high – both from a land value and rental perspective.
But given the ageing industrial stock that abounds in Reading, and the lack of supply to meet current demand, what can we expect to see happen in the industrial market here over the next three years?
Thames Valley industrial property experts, Charlie Nicholson and David Barden of Vail Williams LLP, discuss their predictions, based on their experience of the Reading market over the last 15 years.
Demand will not abate
Reading will be one of the Thames Valley region’s industrial hotspots over the next three years, as demand for modern, larger industrial premises will continue to increase.
One piece of the future demand puzzle will almost certainly come from online retail and last mile delivery, because of the requirement for storage and distribution of products.
But we will also see an increase in demand from businesses operating in the biotech and pharmaceuticals sectors, continuing the trend we have seen on the ground here over the last 18-24 months.
Meanwhile, film production companies will continue to seek more studios in Reading, thanks in main to its fantastic position close to Heathrow. With Blackhall studios about to sign between 600,000-800,000 sq ft of industrial space at Reading Science Park, this will likely be the catalyst to ignite this trend.
Flight to quality will transform ageing stock
Reading has a lot of ageing industrial stock which is either too small or no longer fit for the needs of the modern occupier.
Although there are over 9.5 million sq ft of buildings classed as industrial stock within a three-mile radius of central Reading (CoStar), 72% of this was built over 20 years ago.
Whilst this doesn’t necessarily represent a problem for the manufacturers where eaves height can be less of an issue, it is a missed opportunity for the landlords and investors leasing them, who are unable to maximise their investment return when compared with new build rents.
However, there is a fantastic opportunity for the discerning investor and developer in the longer term.
We expect to see a lot of this older stock converted, knocked down and redeveloped in the next three years, bringing forth more modern industrial supply for those high tech, R&D and life sciences firms and production companies currently seeking it.
This will, in some cases, involve multiple parties acting together to bring forward larger sites, which creates greater opportunity for redevelopment.
Where will new stock be delivered?
For businesses requiring ease of access to national and international transport infrastructure, Reading is hard to beat.
It boasts ease of access to major motorway networks, including the M4, which opens up routes to the west and into the City, as well as providing direct access to Heathrow airport.
Prime industrial sites will be within close proximity to motorway junctions, so we expect to see much of the industrial supply of the next three years, delivered near the M4, around the A33 corridor from J11 of the M4 into Reading, to service the last mile logistics market out through the M4.
What will it look like?
Much of the pre-2000 industrial stock is, on average, 18,500 sq ft in size. However, the current demand profile far exceeds this, at some 60,000 sq ft and over according to the latest Industrial Agent Society (IAS) requirement information.
We are likely to see the delivery of much larger units in Reading over the next three years, predominantly through redevelopment and the amalgamation of smaller plots.
To ensure these are delivered in line with demand profile, investors and developers will want to design buildings to match, including higher eaves to enable layers or palette / racking systems or mezzanines.
The vast majority of occupiers want a clear height between 8-12m, depending on the size of the unit, as well as good yard space provision.
Vehicles that increasingly running on LPG gas will require more charging points as well as bigger turning circles to allow for their growing size, so larger yards and better infrastructure and power, not just to the buildings but also the yards, will be a must.
There is genuine demand from industrial occupiers today to be carbon neutral or carbon negative, so developers will need to ensure that their industrial premises are designed to meet these needs.
We will need to see the delivery of much greener industrial building credentials, enabling occupiers to meet their carbon targets and developers to tick their own sustainability boxes, whilst ensuring that the buildings are environmentally future-proofed for the potential investor.
This will be achieved in a variety of ways, from using the right sustainable materials at the construction phase and increasing use of solar PV panels, green walls, and the harvesting of rainwater, to the delivery of more vehicle charging points – both for employees, as well as HGVs.
How much will they cost?
Whilst rents have risen consistently in Reading by 4-5% over the last 24 months, they remain cost-effective, compared with the towns and cities further east along the M4 or in central London, at £11.50 psf. Meanwhile, in neighbouring towns like Slough, you can expect to pay between £15.00-£16.00 psf.
As the flight to industrial quality continues, we expect the growth in rental tone to continue, and it is not unthinkable that they could reach £14.00-15.00 psf, provided the product is of the right size and specification.
Don’t miss out
Of course, with industrial demand outstripping supply, the impact will be felt on land values.
This is already being born out on brownfield development plots or sites close to motorway junctions which are earmarked for residential development, but where we are seeing industrial developers outbid residential counterparts, with land values reaching between £2-2.5 million an acre.
So, if you are an owner occupier or investor / developer and you want to acquire land for development, you can expect to pay a lot more for it over the next three years.
Regional expertise is key
Whether you are an owner occupier looking for a design and build opportunity, a landowner looking to sell your land, or a developer or investor looking to invest in a site, it is important to understand the potential of the site and any local restrictions which might impact on the development.
As active property advisers in the Thames Valley market for over 30 years, we know the industrial market here like no other.
Working with you to understand your development objectives, we will establish the feasibility of your scheme, whilst making the link between occupiers and different owners, to redevelop based on mutual benefit.
We will identify the sites that are ripe for development, helping to spark investment development discussions, and will take you through the planning and build-out process, project managing the build all the way into occupation, letting or subsequent sale.
We believe that Reading really is the land of industrial opportunity for the next three years, and our Thames Valley property experts can take you there.