Tuesday 25th Oct 2016 - Logistics Manager

The race is on…

With shortages in sight the race is on to secure space in the region while it is still there.

There is no doubt about it but space is getting to be a premium in the West Midlands. According to CBRE’s latest UK Logistics Marketview the West Midlands saw the highest take-up of new logistics units at 680,000 sq ft and just under one million sq ft of second hand space.

Richard Meering of CBRE says: “After a more subdued end to 2011, there was a spike of occupier activity during the first six months of the year, which is a good sign that the logistics market remains strong, with continued demand in the recognised core distribution locations.

“However, as previously identified by CBRE research, the supply of existing quality new stock is rapidly running out and this will cause problems for some occupiers.

“While supply levels have remained relatively stable over the past 12 months, new space continues to decline, falling 22 per cent since the start of the year. In contrast, the amount of second-hand stock has continued to increase, rising by 30 per cent to 5.6 million sq ft, resulting in the market now being dominated by second-hand space. While functional and perhaps offering fit out, a lot of these buildings will not necessarily offer the preferred specification occupiers are looking for.”

According to the CBRE report, of the transactions that were completed during the first half of the year, the majority were sub-200,000 sq ft. Significantly, there have been no deals over 500,000 sq ft in the West Midlands for more than 12 months, since the lettings to Amazon at G. Park, Rugeley and Ocado at Birch Coppice were all agreed. And with a number of buildings currently under offer also in the sub-200,000 sq ft size bracket, the trend is expected to continue during the second half the year.

CBRE recently completed a 141,000 sq ft letting at P141 Tetron Point in Swadlincote to Euro Car Parts, the UK’s leading distributor of parts for cars and light commercial vehicles. The company has taken the unit on a 10 year lease at a headline rent of £4.75 per sq ft.

To further illustrate the point, global logistics company Syncreon has recently taken 213,000 sq ft at 5110 Magna Park in Lutterworth on a 10 year lease at a rent of £5.50 per sq ft. CBRE advised the landlord, Blackstone, having acquired the building on its behalf. Both deals were completed within four weeks of terms being agreed. “Despite the challenging economic climate, companies are having to react to their markets,” said Meering.

Indeed David Willmer of GVA notes: “There are a number of buildings in solicitors’ hands and we are now at a point everyone has been talking about – shortages.”

Ranjit Gill of BNP Paribas says: “The 100 – 150,000 sq ft warehouse market was massively oversupplied but now there are only three or four building left. There are five occupiers chasing four buildings and I would be surprised if those building are around in three or four months’ time. Demand is in excess of supply.”

Under offer

Buildings under offer or in solicitors’ hands are believed to include Frogmore’s Rivet totalling 222,958 sq ft. It is rumoured to be under offer to Lear, makers of car seats to Jaguar. It is being marketed by Jones Lang LaSalle, Harris Lamb and CBRE. The building has 10m eaves, 22 dock and six level access doors, a 45m deep yard and a 50kN/sq m floor loading.

Altitude in Birmingham totalling 149,000 sq ft is thought to be under offer on a freehold basis, while the Eagle warehouse at Fradley Park, totalling 104,000 sq ft, is rumoured to be under offer on long term lease.

Measham 142 is believed to be under offer to Wolsey which is taking a short term lease with an option to purchase. It is being let by BNP Paribas and Colliers.

Even those buildings which have been on the market for a considerable time are now being taken up. The Hub totalling 120,000 sq ft has very good interest and no agent expects it to be around long. ProLogis’ 166,000 sq ft The Fort which came back on the market and has been fully refurbished is not expected to hang around long.

Willmer warns: “If those all happen there is nothing new coming on we really are going to struggle to find stock.”

The driver for much of the recent take-up is squarely with the automotive industry. Meering says: “The Midlands automotive industry is going from strength-to-strength, with the likes of BMW, which announced it will be investing £250 million in its three Mini factories in the UK including the plant at Hams Hall, and Jaguar Land Rover committing millions of pounds of investment in their regional operations.

“In a further boost for the manufacturing industry, Hitachi has announced that it will be building a new 450,000 sq ft train manufacturing facility at Amazon Park in Newton Aycliffe. “All of this is good news for the logistics sector, but we need the available stock.”

With limited availability of new space across the Midlands, Meering said attention is turning to where new stock can be delivered.

“There are now significant gaps in available quality units across the region, particularly from Birmingham down to Rugby within the ‘Golden Triangle’, and occupiers are having to increasingly focus on ‘oven ready’ development sites where infrastructure is in place and buildings can be procured within 12 to 15 months. However, the number of sites that can offer this are very limited.

“We are starting to see the first quality development sites coming to the market, which are generating strong interest. Best bids have been secured on notable development sites at Milton Ham, Northampton, Ryton in Coventry and Rugby Gateway, all of which offer excellent immediate development potential.

“For developers and landlords, the pendulum has definitely swung in their favour as they are now able to secure strong returns.”

John Dodds of developer St. Modwen said: “The Midlands region has seen a raft of deals over the past few months, leading to a lack of available sheds against increasing occupier demand.

“Hilton Business Park in Derbyshire has experienced a flurry of activity with all buildings now fully occupied following 250,000 sq ft of transactions since the beginning of the financial year in December.

“The last couple of years have seen a turnaround in occupier activity since demand was held back in the recession five years ago. We have let virtually all our existing new stock and we also have little second hand space available.

“St. Modwen continues to receive enquiries for its existing properties and virtually all our stock in the Midlands is now occupied. Developers have had to take a flexible approach in agreeing transactions over the last few years. However going forward, as existing stock becomes increasingly occupied and vacancies decrease, it is anticipated that incentives will reduce with a return to longer leases.”

Slow climb north

Indeed according to Colliers International’s newly launched Logistics and Industrial Big Sheds Rent Map 2012, eight out of 12 locations across the region saw rents rise: Birmingham, Coventry, Stafford and Stoke-on-Trent, all saw a rent rise of 25p per sq ft. Simon Norton of Colliers says: “Average prime rents in the Midlands’ ‘big shed’ sector (in excess of 200,000 sq ft) are beginning the slow climb north.

“Although I can’t get too excited, an average rise of 25p on prime rents and £25,000 on land values is a start. Last year, I got a distinct feeling of deja-vu reading the statistics: they had not moved on from 2010 and in a few cases had declined. In 2012, the general trend is upwards.”

Although slow, Norton believes rents and land values will continue to increase.

He says: “It’s a brave man who calls the bottom of the market, but I’m going to put my neck on the line. The fact is, we are running out of big sheds in the Midlands. You don’t need a degree in economics to work out that demand is outstripping supply and that this will put pressure on rents and land values.

“As a result, we will see secondary rents, largely static this year, move in the same direction as prime rents next year.”

According to Neil Starkie of Savills: “There’s about 3.1m sq ft of grade A shed space available, about 1.9 million sq ft is new (never occupied) and about 1 million sq ft is under offer. There won’t be much left shortly.”

With this being the case and strong demand Ned Jones of DTZ who specialises in property investment notes: “DTZ’s Fair Value report suggests Birmingham Industrial investments are now under-priced and the diminishing supply of grade A distribution buildings in the region is a major factor. A large number of the available grade A buildings have now been occupied over the last 24 months and this, combined with the lack of speculative build schemes, should result in an upward movement in rental levels in this sector. Prime property is providing investors with an attractive proposition in a difficult economic climate, and we consider that pricing is the most attractive it has been for investors since mid-2009.”

But what space is available? Of the modern Grade A buildings there is Standard Life’s 302,693 sq ft The Duke on Wellington Road in Burton on Trent, built in conjunction with Anson Properties boasting a 12m eaves height, 24 dock and 4 level access doors, a 50m deep yard and 15,000 sq ft of two-storey offices. It is being marketed by CBRE and GVA.Chatterley Valley

Then there is Gazeley’s G.Park Blue Planet at Chatterley Valley in Staffordshire. The 387,762 ft warehouse has 15m eaves and 38 dock and two level access doors with a floor loading of 50kn/sqm. Joint agents are CBRE and Lambert Smith Hampton.

Developer Goodman has The Citadel at Junction 10 of the M6 motorway totalling 321,000 sq ft. It has 12m eaves, two 50m yards as well as 28 dock and 4 level access doors and a 50kn/sqm floor loading. Letting agents are Bulleys, Knight Frank and Jones Lang LaSalle. The developer also has a 213,240 sq ft warehouse in Burton known as First Point, which is being marketed by Jones Lang LaSalle, Savills and BNP Paribas. The property has a 12m eaves height, 18 dock leveller and two 2 level access doors, a 50m yard depth as well as external landscaping with 274 car spaces.

One of the largest modern buildings available in the West Midlands is Alto415 in Newcastle-under-Lyme. The 415,000 sq ft warehouse boasts 15.6m eaves, 36 dock and 2 level access doors, 56 HGV and 205 car parking spaces on a 20.4 acre secure site. Letting agents are Moriarty & Co, CBRE and Jones Lang LaSalle.

Second hand sheds offer more scope but any that are of good quality are quickly being snapped up. Gerald Eve is marketing the 603,000 sq ft Peugeot facility known as Coventry DC and already has strong interest even though Peugeot are not moving until the Autumn. Quoting rents are believed to be £2.75 – £3.50 per sq ft.

North Rae Sanders is marketing one the largest second hand buildings in the country the 594,000 sq ft former Focus warehouse in Tamworth on behalf of London & Stamford. The building has had a £6m fit out and is fully racked with 50,000 pallet spaces. It has 10.4m eaves as well as 64 dock and 10 scissor lifts and boasts a 60m yard and parking for over 100 trailers and currently being refurbished to bring it up to standard. Joint agent is Dowley Turner Real Estate. Quoting rent is £5.25 per sq ft on a 10 year lease.

Another large second hand unit is the former Co-op building at Valley Central in Rugby totalling 334,000 sq ft. It has 12m eaves, 30 docks and a quoting rent of £5.25 per sq ft. Letting agents GVA and Savills say the lease length can be flexible.

Robert Rae of North Rae Sanders says: “We expect to see more occupiers looking at D&B and subject to the economy we will see a steady increase in pre-lets and pre-sales in the next 18 months. For developers land will be key going forward.”

Gazeley has several sites in the West Midlands including G.Park Stoke that could take 562,000 sq ft; G.Park Tamworth which could accommodate an 80,000 sq ft unit on a 4 acre site and G.Park Ashby which could accommodate up to 850,000 sq ft on a 60 acre rail connected site.

ProLogis’ has ProLogis Park Ryton totalling 60 acres which as has planning for three units of 300,000 sq ft, 375,000 q ft and 500,000 sq ft while ProLogis Midpoint can take up to 450,000 sq ft. Letting agents at Ryton are North Rae Sanders, Jones Lang LaSalle and Gerald Eve while Savills, Gerald Eve and Jones Lang LaSalle are marketing Midpoint.

ProLogis Park Sideway can take a cross dock unit of 530,000 sq ft and its plot at Fradley Park known as ProLogis Park Lichfield can take up to 800,000 sq ft.

Other large schemes include Bericote Properties’ Bericote Four Ashes at Junction 12 of the M6 motorway totalling 53 acres that could accommodate a million sq ft in a single unit. Jones Lang LaSalle and DTRE are letting agents then there is First Industrial’s Prime 10 scheme at Junction 10 which could take units over 400,000 sq ft. It is being marketed by Jones Lang LaSalle and Leighton High. IM Properties could accommodate up to 600,000 sq ft on its Birch Coppice scheme through letting agents CBRE and Colliers. St Modwen has sites at Longbridge, Coventry; Barton near Burton upon Trent, Hilton, Swadlincote, Worcester and Washwood Heath.