Monday 5th Dec 2016 - Logistics Manager

The age of the pre-loved?

An influx of second-hand space has put the squeeze on developers and landlords of distribution space throughout the west midlands, says Liza Helps

The North west, Yorkshire and the west Midlands have seen arounf 15 Million sq ft of second-hand space flood the market, and with business failures continuing to hit the headlines this release of space back to the market is expected to continue, according to garald Eve’s latest Prime Logistics report.

Research by Lambert Smith Hampton concludes that in Birmingham and Coventry second-hand space alone accounts for three quarters of the available stock. Kevin Mofid of BNP Paribas Real Estate agrees there is a lot of second-hand stock on the market: “All regions have more second-hand stock than new stock at the moment.”

David Binks of Cushman & Wakefield says that in the past month there have been several high profile second- hand sheds coming back to the market in the West Midlands. These include Tesco’s warehouse in Coventry, Woolworths’ former facility in Rugby, as well as Hydro at Magna Park. The three-year-old building was occupied by Primark following the destruction of its previous facility by fire in November 2005. Hydro is surplus to requirements now that Primark has taken a larger distribution warehouse in Thrapston.

Hydro totals 422,784 sq ft and has 15m eaves. It incorporates substantial features from 36 dock level doors and a large secure yard up to 92m deep. It is an eco- friendly building with reduced running costs, one of the first in the country to incorporate Gazeley’s Eco Template in 2005. It is being marketed by North Rae Sanders and CB Richard Ellis on a short or long-term basis at £5.50 per sq ft.

For occupiers there is considerable advantage in opting to secure a modern second-hand unit rather than one of the newly built warehouses, because frequently they are already fitted out and in many cases come partially and fully racked. This means that, in effect, there is no additional capital expenditure required from the tenant.

The former Woolworths unit in Rugby, which is being marketed by GVA Grimley, comes fully racked and fitted out. The 334,172 sq ft cross-docked facility known as Valley Central comes with 12m eaves, 30 dock levellers and wide aisle racking with room for 28,000 pallet spaces. It has sprinklers, heating, lighting, and a standby generator. It also boasts three-storey offices, as well as a vehicle wash, fuel and weighbridge on site. The beauty of it all is that the facility is being marketed at a discounted rent to brand new buildings, which do not boast half the features offered.

Higher ratings

David Willmer of GVA Grimley points out that the majority of brand new buildings will have a higher rating assessment than older second-hand buildings. “Brand new building rates could be at least double compared to a 15-year-old, second-hand warehouse.”

Willmer adds that those tenants seeking to secure a short-term letting will find that many buildings will be unviable if they are not at least partially racked out. Nick Waddington of M3 is of the same opinion. He is marketing Big Blue in Deykin Avenue, Witton with joint agent Colliers CRE.

The 212,165 sq ft building is partially fitted out and is part chilled. It has an impressive 18m eaves height as well as 16 dock levellers and a 50kN/sq m floor loading. The rent quoted is £4.75 per sq ft.

In a market where there is a surplus of space this is a point that has not gone unnoticed by developers and landlords alike in the scramble to secure occupiers. In addition, developers and landlords are also competing with large 3PLs to let space. DHL has two units in the region totalling some 600,000 sq ft, including its unit at Daventry DIDC2, which it is looking to back fill. And Wincanton is coming out of Colossus in Penkridge Staffordshire, which it had been using to service its M&S contract.

The 366,000 sq ft building has racking space for 18,000 pallets and is being marketed by Savills and North Rae Sanders at a quoting rent of £3.45 per sq ft.

Head to head

Nigel Dolan of Gazeley is well aware that for the first time second-hand stock is head to head with brand new space. “We are driven to be as competitive as we can,” he says. He intimated that dependent on lease length and covenant, Gazeley would be willing to go to significant lengths to assist potential tenants. “Not everyone has got the capital to fit out [a building] and relocation costs are significant.”

The developer has two buildings awaiting a tenant in the region and several sites to bring forward. Of the two buildings, the biggest by far is the 700,000 sq ft Flair unit at G.Park Rugeley. The cross-dock warehouse is set on a 40-acre site and boasts a clear internal height of 14.3m to underside of haunch and a floor loading of 50kN/sq m. It has 80 loading docks, eight level access doors and 260 HGV spaces. Letting agents are M3 and Burbage Realty.

Perhaps though the jewel in the Gazeley crown must be the recently completed £50m G.Park Blue Planet at Chatterley Valley in Staffordshire. It is the first development in the world to achieve the new BREEAM (Building Research Establishment Environmental Assessment Method) Outstanding rating (design stage). This is the highest sustainable accolade available in property development.

And if that is not impressive then perhaps the fact that the building could create cost savings in the region of £300,000 a year is.

On average G.Park Blue Planet scored 85.49 per cent, which classifies it as outstanding under the new, tougher 2008 ratings for environmental performance introduced in June 2008. The development scored particularly well under the BREEAM rating in the management, health & well-being and water (all 100 per cent); energy (87.5 per cent); and waste (85.71 per cent).

This 387,762 sq ft facility is the UK’s first truly carbon positive logistics development, with its own biomass micro power station. What sets it apart is that 100 per cent of the energy and heat is supplied by renewable sources.

The warehouse has 15m eaves and 38 dock and two level access doors with a floor loading of 50kN/sq m. It is being marketed by joint agents M3, Bulleys and Lambert Smith Hampton at a quoting rent of £4.95 per sq ft.

Gazeley is not the only developer to be all too aware of the threat posed by the influx of second-hand units. ProLogis has also made known that it too will be willing to strike a deal on any of its current stock incorporating a generic fit out – but not racking – on a short-term lease.

The advantages are easy to discern for the tenant, as modern buildings are that much more environmentally friendly and, more importantly, are operationally cheaper to run.

Indeed ProLogis’ Alan Sarjant says that, according to research by ProLogis: “It is 69 per cent cheaper on an annual basis [to run one of its buildings] than on an [equivalent] older building.”

For the landlord the benefits are that the stock will be that much more attractive and will hopefully let faster, helping to generate cash flow at a time when every penny counts. A few years down the line when the economic climate is more stable the tenant can opt to stay or give up the lease and the building still remains a very desirable property to let, especially as it is unlikely that there will be much additional speculative stock brought to the market in the next two years.

Build-to-suit

ProLogis has a number of warehouses in the region. These include two warehouses at ProLogis Park Midpoint in Birmingham: DC3 totalling 237,134 sq ft and DC4 at 313,771 sq ft. Both units have a 12.5m eaves height, 50kN/sq m floor loading, a minimum yard depth of 50m and a range of eco initiatives including 15 per cent roof lights. Joint letting agents, Jones Lang LaSalle, Savills and Gerald Eve are quoting £5.75 per sq ft. A further two large distribution units are planned on this site and are available on a build-to-suit basis.

There is also ProLogis’ ProLogis Park Stoke for those with more unusual requirements. DC3 totals 380,000 sq ft with 12m eaves and is situated next door to a large development plot which could accommodate a further 150,000 sq ft. Letting agents are GVA Grimley, North Rae Sanders and Lamonts.

Other schemes where landlords are looking to be flexible include The Duke on Wellington Road in Burton- on-Trent, where Standard Life has shown considerable confidence in the market. The 300,000 sq ft speculative warehouse, built in conjunction with Anson Properties, boasts a 12m eaves height, 24 dock and four level access doors, a 50m-deep yard and 15,000 sq ft of two-storey offices. It is being marketed by M3 and Knight Frank, who are quoting £5.25 per sq ft.

There is also Goodman’s The Citadel at Junction 10 of the M6 motorway totalling 321,000 sq ft. It has 12m eaves, two 50m yards as well as 28 dock and four level access doors and a 50kN/sq m floor loading. Letting agents are Knight Frank and Jones Lang LaSalle, quoting £5.25 per sq ft and offering to sell for £80 per sq ft.

Incentive-driven

Mike Price says that, not to be outdone on the giveaway stakes, developer Segro is openly offering incentives that include fit out at its Meteor Park scheme in Birmingham.

It is interesting to note that the quoting rent of £6 per sq ft is not shifting.

Dolan has a theory that tenants are driven more by incentives and are less worried about the headline rent. It certainly doesn’t seem that it will be a deal breaker in this market as Price adds: “The quoting rent is precisely that, a quoting rent. If a genuine occupier was out there then those rents will move significantly.”

It certainly seems that is precisely what happened at IceCube – a former Unilever Birds Eye distribution facility at Hams Hall owned by Goldman Sachs. The 197,623 sq ft frozen distribution unit has just been sold to Dutch firm Partner Logistics, which just happened to secure the contract for Birds Eye off rival Power Europe.

The company says: “There were two reasons for purchasing Hams Hall: one to ensure our new client (Birds Eye) did not have to be disturbed from Hams Hall while they await moving to our Wisbech site (still under construction), and two to gain a site in a strategically important location for the UK.

“We prefer to build our own stores, however the opportunity to enhance our rapidly growing network in the UK had to be taken seriously, and it was. There is scope to extend the facility when we are ready to do so. Ownership of our locations is also important to us as that is the only way to deliver the most competitive rates to our customers.”

The facility, which is fully automated and provides some 42,000 pallet spaces, was being marketed by joint agents Knight Frank and Cushman & Wakefield for a price in the region of £20m.

Although incentives are certainly full, Cameron Mitchell of Jones Lang LaSalle says they are not as soft as perhaps occupiers are being led to believe. “In some locations that are more tertiary there may be some soft deals to be done, but in the more prime locations that might not necessarily be the case. In the Golden Triangle locations there is simply not the supply to give soft deals.”

He does add though that occupiers looking for short-term deals are more likely to be given a warmer welcome than those looking for medium-term deals. Nick Waddington of M3 is of the same mind: “Landlords just want to cover holding costs to try to get through this period and will look to take their chances when the market improves in the future.”

Ranjit Gill of BNP Paribas Real Estate says: “It is a bit of an Indian Summer [for occupiers] but it could all be very different in two years time.”

Research by his company shows that in the West Midlands market there is 3.5 years worth of supply in buildings over 50,000 sq ft based on normal take-up levels. This compares with, say eight years worth of supply in a region such as Yorkshire.

So in fact, although there is plenty of choice now it might not always be the case, bearing in mind that there is virtually no speculative development in the region at all. “Luckily,” says Robert Rae of North Rae Sanders, “although there is no development pipeline – we have got a planning one.”