Monday 24th Oct 2016 - Logistics Manager

Pressure for rent cuts

The credit crunch has meant that the development pipeline for 2009 is virtually zero with static rents, rising construction costs, softening investment yields and a dearth of development funding all conspiring against developers.

Kirsty Palmer of King Sturge says: “Speculative development is extremely limited and is likely to remain so for the foreseeable future, reflecting developer caution in light of the slowdown in occupational demand and the lack of finance.”

Iain Davidson of Colliers CRE agrees: “The credit crunch has meant that the development pipeline for 2009 is virtually zero with static rents, rising construction costs, softening investment yields and a dearth of development funding all conspiring against developers.”

ProLogis, instead of speculatively developing out its scheme at Newhouse in North Lanarkshire, is now focusing its attention on securing design and build contracts. The development, known as ProLogis M8, is situated on Junction 6 of the M8 motorway. It has planning permission for units from 31,500 sq ft to over one million sq ft.

So where does the pressure come to reduce rents? Unfortunately the consensus of opinion is that it will come as a result of businesses failing. Neil Cockburn of Jones Lang LaSalle says: “More space will become available due to closures or insolvency situations. It started in November and I suspect we will be seeing it as being a trend in the next few months. This could have a depressing impact on rent levels as landlords will have to compete.”

Davidson agrees: “We are likely to see more properties coming onto the market as a result of businesses failing. This is likely to create a downward pressure on rents during 2009 although the lack of development may moderate this.”

Rent level at present remains relatively stable. “However,” says Davidson, “landlords are having to be more aggressive in terms of the increased incentives being offered to occupiers.”

Rent levels for prime space for units above 30,000 sq ft are in the region of £5.50 per sq ft with secondary space attracting rents in the region of £3.50 per sq ft. The Big Blue Shed at Bellshill Industrial Estate in Lanarkshire, which came back on the market through King Sturge, is being marketed at a quoting rent of £3.25 per sq ft. The building has become available again owing to existing tenant DHL exercising a break option in June 2008. It totals 143,700 sq ft, and is set on a 6.1-acre site.

There is also the 157,096 sq ft former Internationale building at 21 Coddington Crescent in Eurocentral, which is on the market through James Barr. In addition, says letting agent Yan Stewart: “21 Coddington Crescent offers occupiers the opportunity to lease an excellent building ideal for storage, distribution and logistics. This building can be taken on either three, five or ten-year terms, which will suit third party logistics companies with time-based contracts.”

Ross Sinclair of DTZ says: “Over the past six months there has been a dramatic slow down of speculative development. Multi-let schemes where the landlord has a strong say over lease terms have seen a lot more success because of a general lack of stock. Recently Aggreko took a 70,000 sq ft unit at Moorfield’s Westway in Renfrew on a five-year lease at £3.70 per sq ft. The company is relocating for expansion while building a new HQ at Dumbarton on land owned by Scottish Enterprise.”

Another successful development has been Credential Holdings’ Wardpark in Cumbernauld where Balfour Beatty has signed a five-year lease on 29 – 43 Napier Road, extending to 50,766 sq ft at a rent equivalent to £4 per sq ft.

There are new buildings available including four units at St Modwen’s Pegasus Business Park development and Davidson says there are sites at the development, which could accommodate a unit of up to 100,000 sq ft.

Other existing new-build schemes include Max at Junction 4 of the M8 motorway, which represents the largest completed speculative development to date in the country. The development comprises two standalone units of 380,000 sq ft and 242,000 sq ft, which can be consolidated to create a single unit of 650,000 sq ft. The owners Rockpoint and Evander Properties offer the option of connecting them to form one facility through letting agents CB Richard Ellis and James Barr.

The most significant development completions in 2008 were six buildings totalling 420,000 sq ft at Eurocentral. Two units have been let: the 41,266 sq ft Athena building to TRAC, a leading supplier of specialist engineering services; and the 53,434 sq ft Apollo building to Wincanton. The Centralpoint development provides over 423,660 sq ft of industrial space.

Karen Campbell of TAL CPT Land Development, who is in charge of the Centralpoint development, adds: “The Enterprise Zone status at Centralpoint allows us to offer very attractive incentive packages on state-of-the-art, new-build industrial units which range from 53,434 sq ft to 122,483 sq ft.”