A shortage of industrial development sites coming to the market is driving up land prices, as developers compete to stay in the game of providing industrial and distribution space.
This price-spiralling trend is highlighted by leading Midlands' industrial property expert, Tim Matthews, director and head of industrial and distribution property at Lambert Smith Hampton.
The strong appetite shown by both occupiers and investors for industrial and distribution property is persuading developers to pay more money for development sites in the region.
"Black Country land prices are moving ahead fastest, having gone up some 20 per cent in the past 12 months," explains Mr Matthews, who is based in Lambert Smith Hampton's Birmingham office, "but the cost of land in Birmingham, Staffordshire and Worcestershire is also increasing
"On the face it, this could spell danger for developers paying higher prices for land, as rents have not increased at the same rate.
"It is not developers looking for higher rents, but investors willingness to accept lower yields which is driving the price increase.
"Additional money made by developers from lower yields is being thrown back into the land price."
According to Mr Matthews, the sheer weight of money chasing industrial is keeping yields low.
"Investors still prefer to put their money in commercial property as it continues to outperform equities and gilts in terms of total annual returns," he says.
In the 12 months to February 2005, industrial property generated a total annual return of 17.5 per cent, outperforming equities at 12.8 per cent and gilts at 6.6 per cent.
Where sites do come to the market, says Mr Matthews, interest is intense.
For instance, at Rabone Park, Smethwick, Lambert Smith Hampton sold a total of 100,000 sq ft of industrial and distribution space to an owner occupier and investor Threadneedle on behalf of HBG Properties.
Threadneedle also acquired an empty 35,000 sq ft unit and retained Lambert Smith Hampton to let it.
Mr Matthews reinforcing the point, saying: "We have just announced the sale of the largest single release of office and industrial development land in Worcestershire for more than a year."
The plot in question, Tolladine Goods Yard, is a 23-acre former rail goods yard, less than one mile from the centre of Worcester and less than three miles from junction six and seven of the M5.
"We have almost lost count of the number of enquiries we have received about this site, only one week into the official marketing phase," says Mr Matthews.
"It is not just developers who are interested, but investors are willing to snap up most freeholds which come to the market and some are even prepared to buy an empty unit and look for a tenant, in order to create their own investment."
The shortage of industrial development sites could be made even worse, warns another property expert, by Birmingham City Council's likely decision to return two premium greenfield employment sites to the green belt following consultations on the final modifications to the Unitary Development Plan (UDP).
This could create employment land development difficulties for the city, according to David Green, planning partner, at property consultants NAI Fuller Peiser.
"The council has been forced into this situation following the outcome of the UDP inquiry held in 2002," explains Mr Green.
"Although the UDP still allocates 90 acres at Minworth Sewage Works, it does leave a significant gap in the industrial land offer that Birmingham can provide in the long term."
The two sites being removed are the 140-acre Peddimore major investment site earmarked for inward investment for a single large occupier, and Bassetts Pole, the 125-acre premium employment site which was destined for topquality industrial or research facilities.
The consultation period on the changes ends on May 20.
"The closure of MG Rover will to some extent increase available employment land in the city," says Mr Green, "but the Longbridge site offers a different type of opportunity and will not necessarily replace the premium greenfield sites."
Tim Suffield, head of the Birmingham office of NAI Fuller Peiser, says: "We have been saying for some time that there is a shortage of good quality employment land and this will do nothing to help the situation.
"This likely decision will inevitably push land prices up on those sites which can be developed, which in turn must lead to an increase in rents/capital values."