Friday 28th Oct 2016 - Logistics Manager

Speculative schpeculative!

Are they really getting back on the bandwagon? Are developers really looking to speculatively develop again – I mean on a large scale buildings of more than 100,000 sq ft?

I seriously doubt it.

Despite the ever growing Greek chorus pointing out the obvious that there is little or no modern Grade A space available for occupiers that’s not enough to bring the heady days of 2006/2007 rushing back.

The reason that there was a mass glut of speculative space being built and available back then, I suspect had very little to do with demand or indeed supply and a heck of a lot more to do with cheap money and investor sentiment that if you had it you had to spend it on something rather than leaving it in the bank.

It was speculation more akin to a goldrush than proper hard-nosed economics and only those at the forefront of the rush made any money at all; not that people didn’t try by following blindly behind. I am sure some did strike gold but that was definitely more luck than judgment.

So back to the rumours that abound that developers are poised to spring back in to the market with speculative development. Where they can developers are building up land banks, selling portfolios to secure cash with which they can buy the land and securing deals to build pre-let or even pre-sold sheds to get an income stream to do more. It is what developers do but note they are NOT borrowing if they can possibly help it. Borrowed money these days does not come cheap.

Those investors that are willing to fund development are doing so with the guarantee that they have a secure and long lasting income stream. Deals secured on less than 15 year terms are as rare as hens’ teeth and if they do occur will only be let to those occupiers with extremely secure finances paying a seriously premium rent.

However, that’s not to say that the developers don’t wish to seem as if they might build speculatively if they got they got the chance. And there is a lot of activity out there that would make you think that speculative building is just on the horizon. There have been numerous land deals and option agreements, planning applications are being drawn up though not all are nieng submitted. Everyone is playing their cards extremely close almost in anticipation – and it makes great marketing and even better news stories – hype if you will.

But the reality is no one is actually building.

Liza Helps
Constributing Editor, Property