Thursday 27th Oct 2016 - Logistics Manager

In search of cheap deals

Mike Baugh of property consultant DTZ, says: “In recent weeks we’ve seen an increase in enquiries, I feel like we’ve bottomed out, however there are still issues in terms of finance.”

Andrew Gent of Gent Visick has noticed the re-emergence of 3PL enquiries. “Until recently most 3PLs were focused on filling their own surplus stock but now there are one or two contract-led enquiries and the 3PLs are having to look for additional space to fulfil those requirements.”

Many of the enquiries, says Philip Ryan of developer contractor JF Finnegan, have re-emerged back onto the market from 12 months ago and are now “ready to take advantage of weaker terms”.

It’s not just an increase in enquiries; Roger Haworth of property consultant M3, says there is more tangible interest in buildings and this, he adds, has led to a smattering of deals in the region. Not enough to say the tide has definitely turned, but certainly enough for occupiers in general to take note. It seems as if terms and rents cannot get any better than they are right now especially if these enquiry levels are sustained.

It’s hard to see how they can actually get any softer when there are rumours of a deal in Worksop that saw an occupier secure a second-hand warehouse of 78,000 sq ft on a five-year lease at a rent of just 60p per square foot. Obviously that is an exception but the rule is still proved throughout the region with landlords accepting softer terms than they would have done just 12 short months ago.

Tom Bailey of GVA Grimley says he and his team act on several schemes where landlords are discounting rents and offering strong incentive packages to secure tenants. “Our view is that while leasing activity is picking up there will be a window of opportunity for occupiers for the next six months to secure deals that would not have been available last year.

“Wynyard Park’s TV120 scheme is now offering brand new industrial units (11,378 to 30,516 sq ft) at initial rents from £3 per sq ft. Follingsby Park, Gateshead will tailor packages for individual tenants to enable them to achieve savings on property costs on buildings from five to 60,000 sq ft.

“On Tyneside both Cherry Blossom Way (A1231 / Nissan Complex 100,000 sq ft) and ST160 (South Tyneside 160,000 sq ft) offer large high-quality buildings on either freehold or leasehold basis on attractive terms.”

There is greater flexibility from landlords to offer lease terms linked to 3PL distribution contracts where previously they would have held out for a longer lease commitment. “Tenants prepared to make a long-term commitment,” says Bailey, “may benefit from a substantial rent-free period. Foxcover Distribution Park at Seaham, County Durham, is now offering up to five years rent-free on a new 61,170 sq ft distribution warehouse.”

It is not just in the North East, good incentives are being offered throughout Yorkshire too, particularly in South Yorkshire where there is the largest supply of readily available buildings. Owen Holder of Knight Frank says: “High vacancy levels are causing serious competition between landlords who are fighting over willing tenants.

Short-term lets

“Landlords have been forced to consider short-term lets and offer significant rent-free periods dependant on lease lengths. Two and a half years rent-free has recently been given on a ten-year lease on a 40,000 sq ft unit in Leeds.”

Looking at the supply of big sheds in just Yorkshire and Humberside, Ashley Kerner of BNP Paribas says: “There is some 12 million sq ft in buildings of over 250,000 sq ft in the region representing some 45 per cent of the total stock.”

ProLogis is currently marketing its Crossflow 530 unit in Barnsley at a very competitive rate. The cross-dock facility totalling 530,168 sq ft has 15m eaves and boasts 77 dock levellers, Hörmann dock doors and four level access doors. Letting agents are BNP Paribas, Dove Haigh Phillips and Fisher Hargreaves Proctor.

Rob Oliver of GVA Grimley says: “Many [landlords/developers] are doing these deals for cash flow, often many are below cost to avoid empty rates but as soon as they can they will go up to more sustainable levels.”

Baugh agrees: “Occupiers looking in market are still spoilt for choice. There are potential deals to be had; they will not be around for long.

“It is likely these deals will disappear and then move back towards longer lease and shorter incentives. Time is ripe now. Last month there was an increase in enquiry levels and although these may be 40 – 50 per cent down on the previous year the quality remains good.”

In fact, there has been a number of deals lately that shores up the idea that things are changing. These include Cold Store Logistics taking a 100,000 sq ft warehouse at Easter Developments’ Faverdale East Business Park in Darlington.

The company has taken a ten-year lease on Unit Four. The steel portal frame facility boasts 10m eaves as well as three dock and three level access doors.

It was marketed at £4 per sq ft though the deal was secured at a figure nearer £3.50 per sq ft.

The acquisition forms part of an aggressive expansion programme in agreement with Aldi Supermarkets, which has a contract with Cold Store Logistics to handle and re-package goods on its behalf. Sanderson Weatherall and King Sturge advised Easter Developments.

There has also been the letting of Wilton Developments’ Latitude 135 at Junction 31 of the M62 motorway to Wincanton on a two-year lease with 12-month break to serve the company’s contract with Marks & Spencer, while the retailer builds its one million sq ft national distribution hub in Bradford.

Developer ProLogis has just started construction of the new facility for Marks & Spencer at ProLogis Park Bradford. The building is due to be delivered next spring with the retailer planning to open it by late 2010.

Latitude 135 boasts 10m eaves, as well as 11 dock and three drive-in loading doors. It has a floor loading of 50kN/sq m and around 4,000 sq ft of office accommodation. Carter Towler and Lambert Smith Hampton are letting agents.

In another deal, ProLogis successfully let the 250,200 sq ft former Pawsons warehouse at Wakefield Europort to office supplies company Vasanta. The deal was secured on a 20-year lease at a rent of £4.50 per sq ft with incentives the equivalent of a two-year rent-free period.

There are a variety of other deals in solicitors’ hands but these are under 100,000 sq ft. In fact one of the most active markets has been for properties between 20 – 50,000 sq ft. In Faverdale, data storage firm Capita Businesses Services took a ten-year lease on Unit One comprising 40,000 sq ft. The facility will be used for document storage and data centre facilities. While at Wakefield, Europort data centre operator Node4 has taken a 26,000 sq ft warehouse at Earnstone Development’s six-acre Normandy Park. AWS advised.

Wakefield deal

In Leeds, Standard Life Investments secured two lettings at its Gildersome Spur Industrial Estate. Expanding digital media and print company Lick UK took 40,000 sq ft of warehouse accommodation with ancillary offices, while distribution company CM Downton took a 41,000 sq ft facility

Paul Mack of DTZ, who secured both lettings, says: “Standard Life Investments has invested a significant amount of money to restore the estate to its former glory, and the road improvements to Junction 27 [of the M62 motorway] will have a major impact in helping to attract even more occupiers.”

In yet another deal, packaging company Samuel Grant Group purchased a 21,260 sq ft industrial unit at St Paul’s Developments’ Smithy Wood regeneration scheme in South Yorkshire. Letting agents are CBRE, Fowler Sandford and Knight Frank.

In some areas within the region there is a different tale to be told. Around Sheffield occupiers looking to secure a brand new property of around 100 – 200,000 sq ft will be hard pressed. One of the few buildings in this size range is JF Finnegan’s Magna 34 facility, just off Junction 34 of the M1 motorway.

The 151,123 sq ft building has 12m eaves, 14 dock and two level access doors, 83 parking spaces, offices and power in the region of 750kva. It has a floor loading of 50kN/sq m and can accommodate up to 29,500 pallet spaces using a narrow aisle configuration. However, occupiers will be interested in the fact that the facility falls within the DBERR grant scheme, which will help businesses with finance for capex. Letting agents are Knight Frank and M3.

Large newly built space in the North East is also harder than you might expect to find. Paul Nicholson of BNP Paribas says: “Although there are some big units to be had at both Evander’s Drum development and a 100,000 sq ft unit at Easter’s Cherry Blossom Way next to Nissan, there isn’t much else of size in the area. There are plenty of sites but developers would have to be either pretty brave or mad to build speculatively at present. Most developers will be looking for a pre-let for the foreseeable future.”

Schemes include Merchant Place Developments’ Amazon Park near Newton Aycliffe, Co Durham, where there is outline permission for up to 1.4 million sq ft of space. The developer is actively seeking pre-lets through its agent, Cushman & Wakefield, on the scheme, which could include the largest distribution building ever seen in the North East, a one million sq ft structure with eaves up to 24m high.

“There are sound commercial reasons for including such a large building on this site,” says Geoff Hunton, director of Merchant Place Developments. “Despite the present economic uncertainties, interest remains strongest for the larger facilities mainly from retailers and logistics firms.

“The focus is clearly on size of space, quality, occupational and labour costs, best accessibility to markets and lease terms. In this respect we are extremely competitive.”

Amazon Park is located just off Junction 59 of the A1M, which gives excellent access to several key conurbations as well as south to the M62 corridor and west to the M6 and M74 into Scotland.

In addition to the one million sq ft warehouse, two other warehouses will be developed, one of 62,000 sq ft and the other over 330,000 sq ft. Developer Highbridge has recently acquired the former Goodyear Dunlop site at Washington that had a pretty big unit on it – it has just put in for planning on a big shed there. GVA Grimley is advising.

Then there is Turbine Business Park at Washington but the developer will not build anything out unless there is someone lined up.

Change of use

Some landlords and developers are looking to persuade planners to allow their sites to be used for more than just distribution – CBRE Investors has secured planning permission for a change of usage at Units 1&2 at SIRFT, Europa Way off Junction 33 of the M1 motorway.

The 30-acre SIRFT (Sheffield International Rail Freight Terminal) development, which has two private rail sidings providing direct rail access to the Tinsley line, comprises two high-bay distribution units of 334,781 sq ft and 291,143 sq ft each with an integral two-storey office block which can be combined to provide 647,000 sq ft.

The original planning approval allowed for B8 storage and distribution within the units, which essentially allows the units to be used for warehousing purposes.

The new approval, which is in response to the high level of interest from manufacturing-related industries, now includes additional B2 general industrial usage, which enables manufacturing operations to be carried out on the premises.

Toby Vernon, partner at M3, which is joint agent on the scheme with GVA Grimley and King Sturge, says: “Widening the planning consent to include B2 will broaden our marketing scope to enable us to cater for these requirements.”