DEMAND in the industrial market will remain high this year, with the telecoms, parcel delivery and courier markets particularly buoyant.

Michael Green, partner at King Sturge in Southampton, said, "The industrial/warehouse property market is in good shape.

"Last year it rode economic problems such as the high price of oil and performed well. This year, the industrial sector is predicted to be the top performer in terms of total returns. Much of this has been and is anticipated in the south-east, with prime areas including Southampton and the M27 corridor leading the way."

He said the firm's latest floor space survey, at the end of 2000, showed a small drop in available stock over the year, with new floorspace still only representing six per cent of total available stock - "Ten years ago, we had 50 per cent more stock, with more than 23 per cent available in new developments. We most certainly do not have an oversupply at present.''

This year, tenants will be prepared to sign longer leases to secure property and justify high fit-out costs, but will pay premium rents in locations which can provide required power and connectivity.

Many factors will affect the industrial market in 2001. Mr Green said: "Many old sites are being sold for alternative uses.

"With the need for further housing, the latest planning guidance is encouraging redevelopment of brownfield industrial sites for residential purposes. Sites on main road locations are also attracting higher value uses, particularly offices, new high quality self-storage businesses and trade-counter developments. Difficulties in obtaining acceptable planning permissions are also delaying the development of some sites, further limiting future supply.

"There will be certain changes in distribution patterns over the year.

"The role played by the large centralised hub will continue to be an important part of the logistics process, but we will see the creation of more smaller regional distribution centres closer to their potential customers within the major UK conurbations, such as the Nursling Industrial Estate in Southampton. Congestion issues are still close to the heart in the logistics industry."

Mr Green said one driving force this year will be the continued demand from internet service providers for tele-hotels.

"These are not dot coms," he said. "They are well-funded operations providing an outsourcing service to major clients.

"business to Business (B2B) use of the internet, is still growing at a pace with revenues in Europe expected to increase from 50 billion Euro now to 900 billion by 2005.

"This market is still predominantly based in the south-east, for large units typically in excess of 50,000sq.ft - sometimes up to 400,000sq.ft - in areas populated by fast growing service companies, which also have the connectivity infrastructure and power required to operate these facilities."

Mr Green said ten per cent have been let to telecommunications companies, growing to 25 per cent of all new space in London.

This demand will further pressure the already limited supply of new stock, and drive rents higher this year, and force operators to consider tier-two cities and towns, including Southampton, Fareham and Portsmouth. It will pressure other traditional occupiers of industrial and warehouse space, seeking to relocate.

"Development of a significant telecommunications presence makes Southampton an ideal location for such occupiers."