Tuesday 6th Dec 2016 - Logistics Manager

The occupier is king

Current market conditions mean that if the occupiers have the cash they could make a killing in the north west, says Liza Helps

In terms of pricing rents have not been that adversely affected as yet but the increased incentives and extra flexibility in leases has not seen the increase in rentals that you would normally expect.

“This is due to lack of funding for developers, the empty rates legislation and a reduction in demand, as many occupiers are unwilling to commit to new property due to economic uncertainty.”

Indeed, Andrew Pexton of GVA Grimley reports: “Requirements for existing buildings are being chased hard, as landlords and agents are all feeling the pressure of the combination of increased void costs and the fewer number of enquiries. Landlords are being pragmatic and realise the need to do deals, but they also need to see a sensible return on their property investment.”

“Occupiers,” says Steve Brittle of Atisreal, are: “increasingly seeking more flexible deals in terms of rentals, incentives and lease periods. The deals that are going ahead are taking a lot longer to complete than they were 12 to 18 months ago as people are more and more reluctant to commit.”

In fact, in some cases deals are actually falling through, adding to the pressure. Pexton says: “Several large-scale requirements have been put on hold due to the current economic climate. This is frustrating for all parties given the large amount of design work that developers have undertaken for the occupier. Some requirements have been put on hold due to their inability to secure funding for either freehold purchases or for the level of capital expenditure that is required.”

Although there is a willingness to be pragmatic, this has yet to be seen in terms of rent decreases, although Julien Kenny-Levick of Colliers CRE does not rule that out. “It is fair to say that with a large number of 300,000 sq ft plus new units now on the market that occupiers will inevitably drive harder bargains and we may see rents fall in the short/medium term.”

Print adds: “In terms of pricing rents have not been that adversely affected as yet but the increased incentives and extra flexibility in leases has not seen the increase in rentals that you would normally expect.”

In the meantime though, Andrew Aherne of Lambert Smith Hampton, says: “Rents are generally maintaining their previous levels although there is beginning to be more pressure because the region is not in an over supply situation.

“In fact rents may not go up at all and may probably be pretty flat unless the supply situation changes. We may get to a point where there is no stock left and occupiers will have to look at design and build – that is where you will see rental growth due to increased build costs, yields and so on combined with pressure on land values.”

Pexton is a little more forthright: “Rental levels have stagnated, with the exception being D&B where occupiers will have to pay a value, which reflects the cost of having a purpose built facility. Lease lengths will be ten – 15 years for new build but a lot shorter for speculatively built units and some will inevitably include break clauses.”

Many expect that there will be more D&B projects in the foreseeable future as speculative development dries up and available stock is snapped up.

Speculative development

Brittle explains: “Speculative development has almost slowed to a standstill with a dearth of activity across the whole of the North West. And when the likes of Gazeley and ProLogis, to whom major speculative development is central, stop development you have to conclude that it is scary out there.

“Speculative schemes that have been started will be completed but developers aren’t moving forward with new projects, which is something we haven’t seen for 15 years.”

These include ProLogis’ scheme in Crewe. ProLogis360 has been speculatively built on a site in Weston Road, a similar-sized unit to the one opposite that the company let to Tesco in April 2006.

The warehouse occupies a prime location just south of the town centre minutes from Junctions 16 and 17 of the M6 motorway.

Letting agent Tom Davis, of CB Richard Ellis, says ProLogis had gone the extra mile in the quality of the finished building.

“The ProLogis quality is superb as usual,” he says. “The overall design is excellent, as is the attention to detail, such as having larger than normal hub offices.

“The fit-out is also excellent, and a number of green elements have been incorporated, such as an airtight building and a water retention facility.”

ProLogis360 includes a 336,322 sq ft warehouse, two-storey offices of 11,722 sq ft, a hub office (3,887 sq ft) and gatehouse. There are two level access doors, 32 dock doors, 15m haunch height, a 50m service yard, 51 trailer parking spaces and parking for 262 cars; secure, fenced yard and landscaped surroundings.

The environmental specification includes a carbon neutral envelope, 15 per cent roof lights, minimised air leakage, lower energy light fittings in the offices and has been awarded a BREEAM excellent rating and an Energy Performance Rating of A.

Joint letting agents are CB Richard Ellis, North Rae Sanders and Lamont.

There is also Gazeley’s Unit 1 at G.Park Liverpool, which is due for completion shortly.

The 360,000 sq ft unit will boast an eaves height of 14m, a 50m-yard, as well as five per cent offices. There is also a selection of eco features, which Gazeley says will not only reduce the environmental footprint of the buildings, but also deliver significant annual operating cost savings of over £10,000 to customers through reduced energy consumption.

Biggest hurdle

Bruce Topley of Gazeley adds: “The balance of the site could take up to 500,000 sq ft in one unit as we have planning permission for 870,000 sq ft in total.

Joint agents Colliers CRE, CB Richard Ellis and King Sturge are quoting £4.75 per sq ft.

The reason why there has been a rather sudden stop in speculative development is pretty clear, says Daniel Burn of King Sturge: “With the difficult economic climate, the majority of developers are likely to think twice before undertaking speculative development.”

Indeed, Colin Chivers of Jones Lang LaSalle adds: “Currently the lack of available credit is the biggest hurdle faced by both businesses and developers.

“We anticipate deals will be concentrated on bespoke delivery rather than speculative accommodation, which is expected to dry up in the immediate future. New-build solutions are assisted by perceived land value drops, which together with the potential for construction costs to reduce slightly, will help make new-build more affordable.”

“It is worthwhile noting however that there is little evidence of an actual drop in land values as there have been virtually no land transactions in the region this year. Sites such as Preston East and the Aldi site at Chorley will make interesting indicators of the market.”

Kenny-Levick says that because of the current economic climate some key land sales have fallen through. These include the proposed sale of a 12-acre site at Skelmersdale, by English Partnerships to developer Gladman, that could have accommodated up to 180,000 sq ft of space.

He adds that: “A fall in land prices of up to 40 per cent from the heady days of early 2007 is not out of the question.”

Paul Nolan of Nolan Redshaw agrees that land values have fallen. “Land prices have come down, there’s no two ways about it, build costs should be coming down too in theory but they are taking a while to come through. Land in Trafford Park was in the region of £400,000 an acre.”

He says that land is available in a variety of locations and it is a good time to secure it if you have the finance.

Pexton agrees: “The sale of the Aldi site at Matrix Park, Chorley is due to the need for a larger site for its distribution facility. This will make a good strategic purchase for an owner-occupier as most developers are adopting a conservative approach or are unable to secure funding at present.”

Locations where there is land available for sale or for D&B include 420-acre Kingsway Park in Rochdale, which is being marketed by P3 Property Consultants and Jones Lang LaSalle.

Expansion

Paul Daye of P3 says: “There are a number of large plots for larger requirements and starting in January we will be revisiting those larger requirements of 300,000 sq ft plus. The biggest single unit we could have was around 900,000 sq ft but because we have put forward detailed plans for a 616,000 sq ft unit the largest on a single plot would be in the region of 300,000 sq ft unless we used a combination of plots.”

Developer Wilson Bowden and the North West Development Agency, in partnership with the Rochdale Development Agency and Rochdale Council, submitted detailed plans for the 616,000 sq ft unit in November following an approach from an occupier believed to be JD Sports, which is said to be looking to expand in the region.

The application is for a 592,500 sq ft warehouse which will include 250,000 sq ft of mezzanine space for storage and assembly purposes as well as 22,500 sq ft of office space. The warehouse will boast 16m eaves and will have 24 loading doors as well as a 50kN/sq m floor loading. There is also a depot office of some 1,250 sq ft.

Topley says that Gazeley could accommodate enquiries of up to 488,000 sq ft at the developer’s G.Park Skelmersdale site. There is planning permission for two units; one of 255,000 sq ft and one of 488,000 sq ft. Letting agents are GVA Grimley and Colliers CRE.

Immediate space

For those looking for immediate space there are a variety of large buildings still available including Pioneer Point near Ellesmere Port. The 625,000 sq ft cross-dock building had been marketed as a single unit but it could be split. As a whole it boasts 62 dock levellers and 18 level access doors. It has 55m yards and 76 lorry trailer and 316 car parking spaces on a 30-acre site. The building also has 20,000 sq ft of offices as well as 18m eaves, which can accommodate 128,000 pallet spaces with VNA racking or 70,000 pallet spaces with a reach truck.

Letting agents CB Richard Ellis, M3 and Lamont are quoting £4.25 per sq ft.

Close by LIBP Rockpoint and Evander Properties have The Vault — another whopping shed totalling some 620,000 sq ft. The building was completed just under a year ago and boasts a similar specification to Manor Park with 15m eaves and the ability to provide a floor loading up to 65kN/sq m. On the second-hand front there is The Hub at SEGRO’s Heywood Distribution Park totalling 500,000 sq ft. Next, which took over the former Littlewoods warehouse in 2005, is vacating the building in 2010 but could leave earlier should another occupier wish to move in before the lease is due to expire.

The Hub boasts up to 10.7m eaves height and is fully fitted with racking, sprinklers, lighting and heating. The facility has 20 plus dock levellers as well as level access doors and benefits from an adjoining site M400 of 18.5 acres, which is available for expansion should it be required. Letting agents King Sturge and Savills are quoting a headline rent of £3.75 per sq ft.

Stuart Murray of Savills says: “There is room at the back of the site to add a further 400,000 sq ft of space and with it being second-hand there is much more room for flexibility.”

Then there is Satellite330 at Royal London’s Satellite Park scheme at Chadderton. The refurbished unit totals 330,000 sq ft with a 40,000-pallet capacity. It has 9.5m eaves as well as 16 dock and four level access doors. The facility has a 45m-deep yard with onsite parking for 25 trailers and 116 cars. Letting agents are M3, GVA Grimley and CB Richard Ellis.

Speculative development has almost slowed to a standstill with a dearth of activity across the whole of the North West, and when the likes of Gazeley and ProLogis, to whom major speculative development is central, stop development you have to conclude that it is scary out there.

The sale of the Aldi site at Matrix Park, Chorley is due to the need for a larger site for its distribution facility. This will make a good strategic purchase for an owner-occupier as most developers are adopting a conservative approach or are unable to secure funding at present.