In 2016, 4.7m sq ft of speculative developments were announced, a fall of 39% on 2015. Savills reports that so far this year, only 1.15m sq ft has been announced.
“The last recession is still fresh in people’s memories,” explains Kevin Mofid, head of industrial research at Savills. “Developers don’t want to go too far up the risk curve and no one wants to flood the market with stock and jeopardise rental growth.
“There is still a reasonable amount of speculative stock but people are approaching it in a piecemeal fashion. They’ll wait to let before moving on to the next one.”
The majority of stock currently in the pipeline is in the South East and the West Midlands, which accounted for the largest share by far of speculatively developed space last year. In the East Midlands, which saw particularly high levels of spec development in 2014 and 2015, activity levels fell by 70% last year and the amount of space currently under construction stands at just 0.2m sq ft.
According to David Binks, a partner in the industrial team at Cushman & Wakefield, the EU referendum has contributed to developers taking a more cautious view, focusing on the core areas and thinking more carefully about building exactly what is needed in each area to meet demand.
“Pre-vote, a wave of speculative sheds came on to the market but they remain unlet, particularly 150,000 sq ft to 250,000 sq ft units in the Midlands,” he says.
“There is a little bit of supply congestion around Leicester and Northampton, especially. There’s nothing wrong with the units, but [the owners] will need a bit of luck to get them over the line.”
Mofid cites funding as one of the factors that has forced developers to take a more considered approach. Of the speculative schemes that have been developed since 2012, only 15% were funded by institutional investors – the rest were on developers’ balance sheets.
Despite nervousness, the sheds market’s ability to respond quickly is a comfort to Binks.
“Developers tend to deliver in nine- to 12-month timescales, and now is the time to get on,” he says. “Funding is starting to re-emerge.”
As for whether speculative development will pick up, Mofid doesn’t see that happening just yet. “I don’t anticipate a spike in speculative development,” he says.
“We do have a pipeline of spec but it’s slow and steady. I’m not overly concerned – it’s a measured approach to a slightly more measured market.”