Friday 30th Sep 2016 - Logistics Manager

The big squeeze

With so many deals being done in the North West, and with a number of requirements yet to be fulfilled, is demand going to outstrip supply? Liza Helps looks at the options available.

The main issue concerning warehouse operators, logistics providers and 3PLs in the North West is the lack of supply of good quality/new facilities immediately available, says Julien Kenny-Levick of Colliers International.

And this is due to the plethora of deals being secured. According to Andrew Aherne of Lambert Smith Hampton: “The North West has seen the highest take-up for the last year at over 14 million sq ft whereas the average has been closer to 11 million sq ft.

“This demand has been driven by the big shed market where more than 13 buildings over 175,000 sq ft have been taken over the last 12 months. The average yearly take-up is around four buildings of over this size.

The two largest have been in Rochdale with JD Sports taking over 600,000 sq ft at Kingsway and Fowler Welch taking 500,000 sq ft at Heywood Distribution Park. The current hotspot, however, is in Chorley where CBRE Investors has sold Unit 4 at The Revolution to Conair, the health and beauty products and kitchen appliances group. The 232,000 sq ft building boasts 20 dock and two level access doors, 12m eaves and a very good BREEAM rating. Letting agents King Sturge, GVA and Littler Young acted on behalf of the fund manager.

The remaining R2 unit totalling 199,000 sq ft     was let at a rent of £4.75 per sq ft a few weeks later to pet food manufacturer Golden Acre Pet Foods. Aherne says: “These two transactions take out the remaining speculative buildings within the Greater Manchester area.”

“This spurt of deals,” says Andrew Pexton of GVA, “has all been done with no buildings being built [to replace them].”

The only two speculative buildings available in the North West are now as far away as Liverpool where there is a 150,000 sq ft shed and at Crewe, with ProLogis 360, close to Junctions 16 and 17 of the M6 motorway. The ProLogis development includes a 336,322 sq ft warehouse, two-storey offices of 11,722 sq ft, a hub office totalling 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, a 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.22603

Kenny-Levick warns: “There is plenty of evidence in the market of unsatisfied requirements with some occupiers not having acted swiftly enough to secure a slice of this depleting stock. And occupiers will not be encouraged by the fact that speculative development is unlikely to return for the next 12 months. A rethink is required by occupiers regarding timing and implementation of projects to adapt to this new property landscape – the built to suit route.”

That said there are still a number of good quality second-hand buildings available, which still present an opportunity for occupiers. Unfortunately much of it really isn’t fit for purpose. According to Lambert Smith Hampton’s latest National Industrial & Distribution Report, the North West has the highest total supply in the UK. But this is a headline figure that could be a cause for concern when the available supply is analysed. The majority of it is concentrated in secondary locations and is of secondary quality. For example, several mills have come to the market across North Manchester and South Lancashire and each of these mills averages circa 250,000 sq ft so it does not take long before these headline supply figures are boosted by buildings for which there is effectively no demand.

Of the second-hand units that are available Knight Frank has been instructed to market Kruger’s Royce 220 facility, which extends to 216,530 sq ft on Ashburton Road West, right in the heart of Trafford Park. The unit has eaves heights ranging from 7.7m to 8.4m and benefits from ample loading provision.

The property offers a unique opportunity to acquire accommodation in excess of 200,000 sq ft in a single building in Trafford Park and the premises are available on flexible terms at a ompetitive rental level. Knight Frank is joint agent with WHR.

Rob Taylor of Knight Frank says: “Rents on the facility would be very competitive.” Indeed it is rumoured that rents could be sub £3 per sq ft. The agent is also marketing a 180,000 sq ft refurbished warehouse for AK Worthington, as well as a 150,000 sq ft facility at Blackrod Interchange on behalf of F&C REIT.

Other properties available include HighCross’ Phoenix at Pioneer Point at Ellesmere Port, which totals 405,365 sq ft with an eaves height of 12m. It can be subdivided from 150,000 sq ft and is available leasehold or freehold through joint agents CBRE, Eileen Bilton and Jones Lang LaSalle.

HighCross also has space remaining at its 450,000 sq ft Big Rack distribution warehouse at Deacon Park, Merseyside following the letting of 130,000 sq ft of warehouse space to Allen Logistics. The 3PL took the space on a ten-year lease to help aid its expansion. The property is being marketed by Jones Lang LaSalle, DTZ and CB Richard Ellis at rents in the region of £3 per sq ft.

HighCross asset manager, Iain Taylor, adds: “The Big Rack is a flexible, cost effective industrial/distribution facility, with excellent motorway access and space available from 50,000 sq ft. This is a significant letting at the scheme, accounting for around 30 per cent of the space available.”

HighCross’ Deacon Park scheme also includes a range of office space and smaller industrial warehouse/workshop units. Located on the Knowsley Industrial and Business Park, Deacon Park is just off Junction 4 of the M57 motorway.

There is also space at Satellite Park totalling 332,000 sq ft through joint agents GVA, CBRE and Moriarty & Co.

GVA and CB Richard Ellis have been jointly appointed to let 145,000 sq ft at Link Six 56 Warrington, part of the Stretton Distribution Centre. The facility is located within a mile of the M6/M56 interchange.

Paul Cook of CBRE says: “We expect Link Six 56 will see a high level of interest from potential occupiers, particularly due to the limited availability of modern high facilities of this size and with its location an additional selling point being immediately adjacent to the M56 and M6 motorways and within five miles of the M62 motorway which are important for distribution, storage and logistics companies.”

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.

However, there could be problems on this front too with very few large sites for big sheds available in certain popular locations such as Manchester. Pexton says: “It could be difficult in the North West [to get a large 50 acre site] unless buying a big old industrial site; occupiers may find that site acquisition will be complicated rather than just straight forward.”

Jane Leedham, SEGRO agrees: “For those who have a requirement, the window of opportunity to get great deals is starting to close however, and by great deals, I do not just mean rent/rent-free but also density of development. The supply of readily available sites for big shed development is also drying up quickly, with only a small handful able to accommodate circa 500,000 sq ft plus.”

Aherne adds: “We will also see further activity with developers starting to make the first tentative moves with the view to securing sites. There are however limited serviced sites available and historically the public sector have delivered employment land throughout the North West by assembling sites, remediating them and providing infrastructure. With the demise of the NWDA this will leave a significant gap which will be a challenge for developers and occupiers alike to overcome.

Typical
The recent deal at Bromborough is typical of the type of complicated transaction the NWDA brokered over the years. In it Great Bear Distribution pre-let a 170,000 sq ft warehouse from developer Hampton Brook Estates while at the same time the property was forward sold for just over £8 million by the North West Development Agency to St James’ Place.

Great Bear Distribution has agreed to lease the facility for ten years at an undisclosed sum with a fixed rental uplift in the fifth year.

The warehouse is opposite Cereal Partners factory in Bromborough and Great Bear currently has a contract to warehouse and distribute Cereal Partners products.

The warehouse is due to be completed by Hampton Brook Estates in December 2011.

Real estate fund management group Invista Real Estate Investment Management acted on behalf of St James’s Place, while Platt and Fishwick represented the NWDA and DLA Piper represented St James’s Place. Property agent Legat Owen represented Great Bear and Hampton Brook Estates and Mason Owen represented Invista.

Despite the demise of the RDA, developers do not seem to be put off. Several are on the look-out including Evander and Sladen Estates.

Evander recently secured the 31-acre former BAE Systems site at Matrix Park near Chorley from budget supermarket retailer Aldi, which the retailer deemed too small for its needs. Evander then pre-let to Waitrose. It is thought that the site was secured for a price in the region of £220,000 – £230,000 an acre.

Waitrose plans to open a 360,000 sq ft warehouse with 50,000 sq ft of office space and a vehicle maintenance unit, which will allow it to service up to 80 branches across the North of England and Scotland as part of a £35 million investment.

A planning application has been submitted to Chorley Council and if approved, the centre should open in the autumn of 2012, with recruitment for new drivers, warehouse operatives, office and catering staff likely to start in the spring of 2012.

David Jones, Waitrose’s supply chain director, says: “This new regional distribution centre will provide a vital platform for future expansion and unlock significant opportunities for us to open more shops in the North of England and Scotland.”

Under the deal, Evander will develop the new buildings with funding from British Airways Pension Fund and Waitrose will fit out the warehouse and picking equipment. Waitrose would then lease the site from BA Pension Fund for 25 years. Sites that do come up for sale are garnering wide interest Jason Print of Cushman & Wakefield says: “In light of a number of recent deals, both large and small, developers appetite to secure new development opportunities is getting stronger.

“We are marketing a 38-acre site at Carrington Plains in South Manchester which has already generated significant interest from developers; this probably would not have been the case 12 months ago.”

Pressure
Looking at values and rents, Aherne says: “There has undoubtedly been downward pressure on rents, however a two tier market has emerged. There has been a flight to quality and prime locations by businesses which has meant the prime, medium-sized units, headline rents have held up well. Nevertheless, significant incentives per sq ft are being offered to tenants to maintain these levels of £5.00 – £5.25 per sq ft. This is also reflected in that notably, Manchester has a five per cent void rate which is half that of the rest of the region, again highlighting this flight to established prime locations.

“In the secondary/tertiary market however there has been a collapse in confidence and in many cases, rent free deals are being undertaken for rate mitigation and some landlords are taking a very much ‘bums on seats’ attitude. Again however, there are the first signs of the market turning, particularly where landlords have invested in their portfolios and refurbished and modernised accommodation.”

DTZ’s latest Property Times UK Industrial report for the first quarter of 2011 notes: “A gradual erosion of the best quality space is bringing forward the tipping point where rental growth will return. This is further highlighted by a growing appetite for land from developers.”