A shortage of modern distribution space is predicted for the region. Liza Helps investigates what this means for occupiers.
So even though BNP Paribas Real Estate’s latest Logistics Matters Report says that the South East holds 18 per cent of the total available stock for new and second-hand space over 50,000 sq ft in the UK, the vast majority of it is second-hand. In fact second-hand space in the South East amounts to some 14.7 million sq ft – more than double the amount of new space that is available, says BNP Paribas Real Estate’s head of research, Kevin Mofid.
Andy Harding of King Sturge notes: “There has been a gradual fall in new space availability.” Indeed in the latest King Sturge Industrial & Distribution Floorspace Today report new available floorspace decreased by 4.9 per cent in the second half of 2008.
Richard Evans of Jones Lang LaSalle warns: “There are certain markets which are not quite in the tenant’s favour as imagined but obviously there are geographical areas where great deals can be done simply because the supply demand dynamics are different.”
However, in the London and M25 East region occupiers may find the supply demand dynamics more challenging. Dominic Whitfield of Savills says: “There are not that many big sheds available over 100,000 sq ft and as new sheds are not coming out of the ground, any new space coming to the market over the next few years is likely to be from companies going out of business and rationalising.”
In fact, Charlie Howard of M3, points out that in this region the shortlist of modern large sheds is limited to just three buildings: Voltaic, 12 Point, and ELDP.
Gazeley’s Voltaic building has been on the market the longest and was in fact almost let two years ago, unfortunately the deal never completed and, having been effectively off the market for a few months, missed out on other letting opportunities just prior to the credit crunch hitting the economy.
Voltaic totals 232,965 sq ft on an 11-acre site located adjacent to the A13. It has 12m eaves, a 50kN/sq m floor loading, 20 dock levellers and three level access doors. It has room for 43 HGV and 144 car parking spaces and has a 50m- deep turning yard.
On an eco level it boasts solar photovoltaics, 15 per cent roof lights, a solar thermal hot water system, ground source heat pump and low water use appliances. Letting agents are Altus Edwin Hill and Colliers CRE.
Jones Lang LaSalle is marketing 12 Point Bow, a new 142,000 sq ft industrial warehouse facility built on the site of the former Iron Mountain building in East London.
The building is located on the established ProLogis Park in Bromley-by-Bow, and includes approximately 16,000 sq ft of comfort-cooled office accommodation over two floors. It also benefits from 12.5m eaves height, 12 docks and four ground doors, 50kN/sq m floor loading and 1,000 KVA power transformer.
Jones Lang LaSalle is marketing the building on behalf of Iron Mountain and is willing to let on the basis of assignment or sublet. Short-term/flexible leases may also be considered.
The final property is AMB Property Corporation’s warehouse on its East London Distribution Park scheme in Dagenham where direct mail giant DSICMM consolidated its operations last October in a 178,000 sq ft warehouse. The company invested £10m on the site. It took a ten-year lease at a rent of £7.25 per sq ft. The remaining unit totals some 141,924 sq ft and has a 12m eaves height. The building has nine dock and five level access doors with a floor loading of 50kN/sq m as well as a yard depth of 49m. The self-contained unit also has 14,359 sq ft of high specification, comfort-cooled offices. Joint agents Savills, M3 and Jones Lang LaSalle are quoting £7.75 per sq ft.
There is one further building, Magnum 25 at Waltham Cross. However, this is believed to be under offer. The property, which sits on an eight-acre site, totals some 177,900 sq ft. It has an eaves height of 12m and has 14 dock and three level access doors. It has a yard depth of 53.5m and a large secure yard with parking for 143 cars. It also has two- storey offices totalling 9,760 sq ft. Letting agents are King Sturge, CB Richard Ellis and Knight Frank.
How long these buildings will remain available is up for debate especially as the consensus of agreement is that LoCog (London Organising Committee of the Olympic Games) is expected to require something in the region of one million sq ft to serve the Games in 2012. The contract to serve the Games is due to be settled shortly. Chip Mitton of Altus Edwin Hill says: “LoCog is believed to have shortlisted three or four 3PLs who will need to take the space or confirm that they have the space available within the criteria of a half-hour drive of the Olympic venue. The 3PLs will need to distribute everything from seats to hurdles.
“A requirement of this magnitude could make a considerable difference to the availability of the market. In addition to LoCog there will be other companies needing to supply product for the Olympic Games, especially those in the food industry, who will be vying to supply the several million visitors expected. Those companies will need to have space readily to hand.”
Construction firm Laing O’Rourke has already taken two industrial units totalling more than 200,000 sq ft at the former Carlsberg Tetley distribution centre at Silvertown Industrial Park in East London.
The units, on a five-acre site, have been taken on a ten-year lease at a rent of £475,000 a year. The contractor will keep the smaller warehouse totalling 46,138 sq ft, and as part of the deal with landlord Quintain and the London Development Agency, demolish the larger multi-storey building of 165,302 sq ft to use the land as an open storage site for building materials to service new business contracts in the East London area.
There is approximately 2.5 acres of open storage land available to let at Silvertown through letting agent Savills. Gerald Eve advised Laing O’Rourke.
Industrial and distribution space is also being taken up by waste to energy companies, which are preferred occupiers for the regional development agencies, such as the London Development Agency, as 3PL distribution is perceived to provide low and poor quality jobs.
London Thames Gateway Development Corporation has gone one step further and established a sustainable industries park on 62 acres of industrial zoned employment land in Dagenham.
The corporation has just secured waste to energy company Cyclamax as an occupier. The company will build its fourth – and flagship facility – on an 8.65-acre site at the London SIP. The 100,000-tonne capacity gasification plant will produce up to 15 megawatts of energy a year, providing enough power for up to 20,000 homes. It will divert commercial waste that would otherwise have gone to landfill, including non-recyclable waste from offices, restaurants and retailers. Cyclamax will lodge a planning application for its 180,000 sq ft plant this summer on the London Sustainable Industries Park and expects it to be operational in early 2012. Jones Lang LaSalle is advising.
Over in Edmonton waste management company Greenstar UK has taken Invista’s 193,000 sq ft warehouse known as Atlas.
The property was let on a 25-year lease, with a break option after 20 years. The initial rent equates to £7.85 per sq ft.
Atlas benefited from 12m clear eaves, 14 dock levellers, four level access loading doors and a 50m-yard. Joint agents M3 and Savills advised the landlord, and Savills also acted for Greenstar UK.
Charlie Howard of M3 says: “The main occupational demand is coming from the waste management and waste to energy companies at the moment, and indeed we are speaking to a number of them with a view to taking the space at ELDP.”
Backing up this statement is the rumour that Magnum 25 will also be let to one such waste management company.
So occupiers looking for new space are more than likely to have to try to secure sites either for owner occupation or on a design and build basis.
Kevin Storey of Cushman & Wakefield says that distribution occupiers seeking space in the region will have to look further and further out to secure space. “The regenerative effect of the Olympics is already being felt and industrial land will be under pressure from other uses of a higher value especially from residential development, it is the same old story.”
There are two major sites to the east of the M25. These are DP World’s London Gateway scheme where buildings of up to one million sq ft can be accommodated. In total, London Gateway incorporates over 1,800 acres, this includes the port and park and areas for environmental mitigation.
Then there is ProLogis’ Howbury Park rail freight interchange scheme in Erith just off Junction 1A of the M25. The 156-acre distribution park could accommodate up to 2.1 million sq ft of rail-connected space in four units from 145,000 sq ft to 1.1 million sq ft. The £80m project is expected to take hundreds of lorries off the roads and, according to ProLogis, save 35,000 tonnes of carbon emissions a year and create up to 2,500 new jobs. Letting agents are Savills and BNP Paribas Real Estate.
All is not quite lost though, as Mitton says: “There are sites for development: the problem is that they have to go through the planning process and that is not quick.”
Bericote Properties has a site called Base25 in Erith, previously known as Bronze Age Park. There is planning permission for three buildings of 423,900 sq ft, 83,000 sq ft and 133,700 sq ft with eaves heights up to 17m. Letting agents are Colliers CRE, Altus Edwin Hill and CB Richard Ellis.
To the north at Enfield Gazeley has its G.Park Enfield site, which has planning for a 366,960 sq ft warehouse with 15m eaves, 5.5 per cent office space as well as 34 dock and two level access doors. As expected from Gazeley any such development would come with a host of eco-initiatives including 15 per cent roof lights. Letting agents are Jones Lang LaSalle, CB Richard Ellis and Lambert Smith Hampton.
However, says Mitton: “Companies coming in to look at cheap D&B are in for a bit of a shock and could be a bit taken aback and will find that the full effect of market is working against them due to the cost of funding a development.
“That said, if they are able to take existing buildings then the opposite is true and they could secure a property at an attractive figure – it is a bit of a two-tier market at present.”
Depending on how forced the sale is and how cheaply the finance can be secured, there are some cracking deals going ahead. Jim Frankis of Frankis Porter is dealing with the forced sale of a property in Beckton.
Number One Gemini Business Park totals 111,000 sq ft and has just gone to best bids. “The client had wanted to sell at £11m, now it is half that figure but we have secured seven bids at this much reduced level. This shows that at the right price things will sell and there are investors out there with money to speculate.”
Frankis is marketing the site jointly with Glenny and Matthews & Goodman. He adds: “Now the new empty rates regime is also focusing landlords’ minds and they are more keen to do a deal in many cases.”
The same attitudes apply to those offering second-hand or even refurbished buildings. Jim O’Connell of Glenny is marketing a 66,000 sq ft warehouse formerly occupied by Tate & Lyle. He says: “We are acting on behalf of a property company, which understands the requirements of contract led distribution firms and therefore has adopted a flexible view to lease terms.”
The facility is located at Unit 38/39 at Purfleet Industrial Estate in Purfleet, Essex close to Junction 30 of the M25 motorway. It has an eaves height of 9.15m and is partly fitted out with modern racking systems. The property is soon to undergo a programme of building works to increase the number of roller shutter doors from three to seven, with the addition of dock leveller access.