With a plethora of deals going down it looks like modern warehouse space is going to be in short supply. Liza Helps investigates.
Property agents are predicting a shortage in modern warehouse space in the not too distant future in light of a flurry of property deals, which saw some two million sq ft of space snapped up in the past six months.
By far the largest deal to date is the sale of Evander and Rockpoint’s 618,592 sq ft The Vault facility at Liverpool International Business Park to Lancashire-based discount specialist B&M Retail at a price in the region of £14.85 million with the help of £1.75 million in grant aid from a regeneration agency in Merseyside. This equates to less than £30 per sq ft freehold.
It is located a short distance from Liverpool’s John Lennon Airport, and the motorway system is accessed at Junction 6 of the M62 via the A561 and A5300 dual-carriageways.
It has 15m eaves, 54 dock levellers and two level access doors with a floor loading of 65kN/sq m. It can accommodate up to 159,980 pallets with a narrow aisle configuration. In addition, it boasts 15,481 sq ft of modern office space with suspended ceilings. Outside it has 110 lorry and 370 car parking spaces within a secure fenced yard. B&M Retail is looking to spend a further £8m on fitting out.
CB Richard Ellis and M3 advised on the sale of the building, originally they were quoting rents from £3.95 per sq ft.
Other deals include the letting of 240,000 sq ft of space to Interserve at Royal London Asset Management’s 625,000 sq ft Pioneer Point scheme in Ellesmere Port on a five-year lease. The cross-dock facility boasts 62 dock levellers and 18 level access doors. It has 55m yards and 76 lorry trailer 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. Last year, joint letting agents CB Richard Ellis, M3 and Lamont were quoting rents of £4.25 per sq ft but the rent secured is somewhat lower at around £4 per sq ft.
In Runcorn, Stobart Group has eased its way into Gladman’s 367,860 sq ft warehouse known as Manor Park 360 on a 15-year lease at a rent in the region of £4.50 per sq ft. The property has been acquired by Scottish Widow’s Investment Partnership Property Trust for £22 million.
Stobart Group will move part of its operation from Warrington to the premises; bringing 50 jobs with it and ten jobs will be created as a result of the move. The premises will be used to fulfil a contract with Johnson & Johnson.
WHR and Lambert Smith Hampton advised Gladman on the letting, while Stobart Group was represented by GVA Grimley. King Sturge acted for SWIP.
Elsewhere, Great Bear Distribution has secured Valad Property Group’s 185,000 sq ft distribution building at Broadway 21 in Oldham on a ten-year lease at a rent equating to £4 per sq ft. Great Bear will service the PZ Cussons contract from the building, while 151 Products has bought Threadneedle’s Chill Out, a 178,056 sq ft warehouse with chilling facilities in St Helen’s, formerly occupied by Wincanton. CB Richard Ellis and King Sturge were joint agents.
High street fashion chain Next secured PPG Land’s 95,000 sq ft refurbished Calver9 warehouse at Winwick Quay in Warrington on a 15-year lease at a rent of £3.85 per sq ft. PPG Land was advised by Davis Harrison and King Sturge, while Next was represented by Cushman & Wakefield.
Jonathan Atherton of GVA Grimley says: “All [the] deals were very competitive. And there is one thought process that the deals were done because they were cheap. However, these opportunities will start dwindling as there is no speculative space coming to the market and with an increase in requirements the supply/demand ratio could turn on its head to a certain degree.”
One could say tenants have become opportunists, indeed where occupiers have been relatively footloose deals have been secured primarily on the ability of landlords to be flexible.
Following the deal whereby US packaging company Excelsior Technologies took Invista Real Estate’s 171,000 sq ft warehouse at Parkway Industrial Estate, Deeside on a 20-year lease, Jonathan Thorne of CBRE, says: “Excelsior undertook an extensive search of the North West and Wales region for suitable premises but opted for this building given its bespoke nature for their proposed use and the ability of the landlord to structure a deal to suit their requirement.” Mason Owen acted as joint agents for the landlord, and BNP Paribas Real Estate acted for Excelsior.
Steve Brittle of BNP Paribas Real Estate adds: “Landlords and developers are still offering discounted rents to allay service charges and rates. Existing and second-hand stock may get discounted rents as long as [the rents] cover financial liabilities of building.”
Property consultants are also noting that many landlords are considering short-term licenses although there are no statistics to support it one way or another. After a building has been let on a six to 12-month licence agreement it is then exempt from paying rents for another six months. Anecdotally, some landlords are offering totally rent-free accommodation as long as the tenants agree to pay the rates.
Brittle says: “Incentives have been generous, with deals done on ten-year leases, securing 12 to 18 months rent-free and deals on 15-year lease terms getting up to two years rent-free, but landlords are now trying to dig their heels in, although tenants can still play hardball because of empty rates.”
With a dwindling supply of modern space tenants are likely to opt for second-hand space, but according to Phil Morley of Jones Lang LaSalle: “While there is second-hand stock available in some of the more prime locations there is not an oversupply. There is good modern refurbished second-hand accommodation but it will not necessarily meet occupier requirements.”
Indeed, Atherton notes: “Tenants who require an eaves height of more than 10m will find that very few second-hand units can offer that.”
To make matters worse, says Atherton: “There are second-hand buildings that are past their economic life and are heading to be demolished but if that happens, will the land come back for distribution warehouse use?”
It’s these buildings where owner occupiers can take a view, Regatta Clothing snapped up the 180,000 sq ft Panaloc Building at £20 per sq ft reflecting the land value. The property was cheap and it duplicated what it already leased, but by opting to buy a property similar to what it was already leasing it not only owns its own building now, but also has the option to sell it for alternative uses in a few years time. The company has subsequently leased it for five years to put in a pension plan. Joint agents were GVA Grimley and CB Richard Ellis.
As properties start to let, logistics companies should be aware that they have competition from the waste management sector. Earlier in the summer, King Sturge secured the letting of Fusion, a 208,000 sq ft high bay warehouse facility at Electric Park in Trafford Park to Biffa Waste Services.
Biffa is taking on the property on a 20-year lease at a rent of £4.75 per sq ft. King Sturge acted for Legal & General and Biffa was represented by Boddy & Edwards.
The facility is located off Westinghouse Road in Trafford Park and has easy access to the M60 and M602 motorways. The warehouse has an eaves height of 15m, a 65kN/sq m floor loading and a 50m goods yard.
Elsewhere in the region, a 126-acre site, which could have been used for distribution as well as recycling, has been ring-fenced for environmental uses only. Ince Park is described as the UK’s largest recovery park offering the opportunity to create a concentration of waste management, recycling and reprocessing users in the North West. Joint agents are Cushman & Wakefield and GVA Grimley.
Looking at the future supply line of new space, the outlook seems grim. Morley says: “Following healthy levels of speculative development in the North West over the last five years, only 325,000 sq ft of new industrial/warehouse space was brought to the market by the end of June 2009.”
Atherton agrees: “With no speculative development of any size on the horizon, there are some areas where there are distinct shortages. An occupier looking for a 150,000 – 200,000 sq ft warehouse in Runcorn would be short changed as there is only one, and two people are already rumoured to be fighting over it.”
Sarah Jane Preston of BNP Paribas Real Estate says: “The supply is drying up and very soon we will be in a position where demand will start to outweigh supply due to take up. This could ignite the D&B route.”
Already there have been a number of deals done on this basis, most recently home shopping company Findel is taking a 213,000 sq ft design and build distribution centre at Eshton Group’s Burnley Bridge Business Park in Lancashire.
The Findel facility is expected to be ready for occupation in autumn 2010 and will create some 120 jobs.
The £48m flagship business park comprises 680,000 sq ft of mixed-use employment space, including large industrial units of up to 400,000 sq ft. It is primarily seeking to attract light industrial and distribution-based occupiers. There will also be offices, a convenience retail store, creche and hotel.
The 70-acre site is located close to Junction 9 of the M65 motorway on the former Hepworth’s site at Pollard Moor on the outskirts of Hapton and Padiham. Letting agents are Dove Haigh Phillips and Trevor Dawson.
Developers and landlords are positioning themselves to secure potential tenants. Indeed planning for distribution warehouses has been secured on the recently relaunched Hareshill Distribution Park, which is being marketed by BNP Paribas Real Estate and Colliers CRE. Single units up to 400,000 sq ft can be accommodated. Sara Jane Preston says that two specific occupiers are pursuing D&B proposals on the site.
Morley says: “There are a number of D&B sites in the region including Gazeley’s G.Park Liverpool and G.Park Skelmersdale schemes, Miller Developments’ Omega at Warrington, and Wilson Bowden and NWDA’s 420-acre Kingsway scheme.
“Already architectural industries supplier CR Lawrence has secured a 71,000 sq ft D&B warehouse at Kingsway and there is another 20,000 sq ft warehouse under offer.”
Mike Redshaw of Nolan Redshaw notes that where there is speculative development, particularly for smaller units, lettings have been swift. “Seddons Group development at Heywood Axis Point is one of the few speculative developments at present in the region and it is already 70 per cent let.”
Looking at what is available in larger units in the region he cites the 87,000 sq ft Stadium Point warehouse unit in Trafford Park. The unit has 10m eaves and the quoting rent is £3 – £3.75 per sq ft. Sole agent is Nolan Redshaw.
Elsewhere there is ProLogis’ scheme in Crewe. ProLogis360 has been speculatively built on a site in Weston Road, close to Junctions 16 and 17 of the M6 motorway. It 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.
Then there is Gazeley’s Unit 1 at G.Park Liverpool, totalling 360,000 sq ft unit which has an eaves height of 14m, a 50m yard, as well as five per cent offices. There are also some 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. Joint agents Colliers CRE, CB Richard Ellis and King Sturge are quoting £4.75 per sq ft.
Other deals include the letting of 240,000 sq ft of space to Interserve at Royal London Asset Management’s 625,000 sq ft Pioneer Point scheme in Ellesmere Port on a five-year lease.
Landlords and developers are still offering discounted rents to allay service charges and rates.
With no speculative development of any size on the horizon, there are some areas where there are distinct shortages.