Tuesday 27th Sep 2016 - Logistics Manager

On the borderline

There is increasing pressure on occupiers to opt for D&B across the region as the amount of Grade A space dwindles even further. Liza Helps reports.

A plethora of deals has left the West Midlands with “borderline shortages”, warns Simon Norton of Colliers International. It’s an increasingly common call for occupiers and with it comes not just difficulties in securing space but also the realisation that rents are increasing, lease terms are getting longer and incentives are diminishing.

According to Simon Lloyd of DTZ: “There is now just over two million sq ft of Grade A space available in the whole of the West Midlands. Prime space is extremely constrained in the core of the region.”

David Binks of Cushman & Wakefield notes: “A lot of existing stock has been taken up recently leaving very little available space.”

He cites deals such as the letting of Standard Life’s 302,693 sq ft The Duke on Wellington Road in Burton on Trent, to Clipper Logistics for a contract with clothing retailer Super Group.

The Duke boasts a 12m eaves height, 24 dock and four level access doors, a 50m deep yard and 15,000 sq ft of two-storey offices. It was marketed by CBRE and GVA.

Then there was Gazeley’s speculatively built 387,762 sq ft Blue Planet warehouse at Chatterley Valley, Staffordshire that was let to JCB on a 20-year lease. The warehouse has 15m eaves and 38 dock and two level access doors with a floor loading of 50kn/sqm. Joint agents were CBRE and Lambert Smith Hampton.

In another big deal parcel group Hermes took 336,000 sq ft at Tamworth594, the former Focus Do-it-all distribution warehouse. The space was let on a five-year lease at a rent of £5.25 per sq ft. Lambert Smith Hampton advised Hermes, while Dowley Turner Real Estate and North Rae Sanders acted for the landlord.

“As a result of robust demand,” says Sally Bruer of Gerald Eve, “and relatively low levels of development (and no speculative development) for several years, the availability rate for standing stock in the region for Q2 2013 has fallen to just 10.9 per cent, down from 12.6 per cent in Q1 2013 and from a high of 20.7 per cent in Q4 2009. This is comparatively low compared with the national rate of 11.4 per cent.

Alex Carr of Lambert Smith Hampton notes: “Due to the lack of development activity over the past five years an acute shortage of grade A supply still exists across all sectors – big shed, mid-box and SME.

“Across the region there are now only five new buildings left on the market in excess of 50,000 sq ft, providing just 1,026,510 sq ft of space. However, two of these (Measham 142 and Kingswood Lakeside) are now under offer so the true availability is much lower.”

Those that are available include Goodman’s Citadel at Junction 10 of the M6 motorway totalling 321,000 sq ft. It has 12m eaves, two 50m yards, 28 dock and four level access doors, and a 50kn/sqm floor loading. Letting agents are Bulleys, Knight Frank and Jones Lang LaSalle.

Then there is Blackstone’s 184,910 sq ft Radial Point warehouse at Stoke on Trent – a fully fitted out unit with 12 m eaves 17 dock and three level access doors and fully fitted office accommodation. It is available through joint letting agents Dowley Turner Real Estate, Moriarty & Co and CBRE.

The Falcon at Fradley Park provides 102,000 sq ft and has 10m eaves. It also has 18 dock and three level access doors as well as 18 lorry parking spaces and a fully fitted ground and first floor office accommodation with separate staff car parking. It is being marketed by Kingstons and GVA.

On the second hand front there are a number of good quality buildings including the ex-Pallet Network unit at Prologis Park Midpoint which will become available in January 2014. It totals 312,500 sq ft with expansion to 470,000 sq ft. At present it has 32 dock and 2 level entry doors, a 50m service yard, 50kN/sqm floor loading and a 12.5m eaves height. It is being marketed by Savills, Jones Lang LaSalle and Gerald Eve.

There is still some 258,000 sq ft of space available at Tamworth 594 through joint letting agents North Rae Sanders and Dowley Turner Real Estate. Quoting rent is £5.25 per sq ft.

There is also the 390,000 sq ft ex-Newell building owned by F&C REIT at Fradley Park which is being marketed by CBRE. It has a 17.5m eaves height, 24 dock and four ground level access doors, a 50m secure yard with gatehouse, and is fitted with heaters, sprinklers and lighting. The property is located in Fradley Park, two miles north of Lichfield and is accessed directly off the A38 (dual carriageway).

Bolstered

North Rae Sanders is marketing the 211,594 sq ft Swift 211 on Valley Drive, Rugby, with joint letting agent CBRE. The building has 12m eaves as well as 26 dock loading bays of which 19 are dock levellers. It is currently occupied by GIST on a lease that will come to an end in February 2014. Robert Rae of North Rae Sanders says it is the largest fully fitted racked out warehouse available in the West Midlands. He is quoting a rent of £5.45 per sq ft.

 Lloyd says: “Availability is only likely to be bolstered by the recycling of stock through company relocation or failure.”

The lack of good quality, ready to occupy warehouse space in core Midlands locations is set to present significant challenges for those occupiers seeking units on a short term basis where design and build solutions are not suitable.

Ranjit Gill of Savills says: “Tenants who still think they can get soft deals are in for a real shock when they go out looking.”

 Norton agrees: “Incentives have hardened up and so have headline rents and depending on the location these can be up to £5.55-5.75 per sq ft something unheard of only a year ago.”
 Gill adds: “More and more landlords are holding their ground with stock availability becoming so acute.”

So strong is the market says CBRE: “The majority of good, modern, existing units are now attracting strong interest from occupiers, in many cases from multiple parties.”

Adam McGuinness of Jones Lang LaSalle agrees and says that sometimes a building can go under offer before a brochure is even printed. This happened on Rapid in Rugby, a 128,000 sq ft warehouse which had previously been let to Unipart, which is now under offer on a ten-year lease after a dozen viewings. David Willmer of GVA says: “This just typifies what is happening in the market.”

With this sort of demand it is no wonder landlords are holding out for longer leases too. McGuinness says: “Landlords are recognising the pent up demand in the market and are pushing for ten-year terms with the best covenants. They are less prepared to move off the quoting rent and there is a tightening of incentives across the market, certainly for the most prime of stock.”

Diminished

Rae agrees: “Rent free periods have certainly diminished with offerings on a ten-year lease falling from 24 months to 9 -15 months and on a five year lease only six months. Incentives have moved downward on five year leases as well to 6-9 months down from a year. With this in mind some [landlords] will and some won’t hold out for longer leases. The vast majority will look for at least five years well aware that they are one of the only shows in town and will be harder on terms.”

With limited availability and growing steadfastness among landlords rental levels are hardening too in the build-to-suit market, says Willmer: “Quoting rents for D&B are being pushed to £5.75 and even £5.95 per sq ft for those sites in a good quality location.”

While supply remains restricted and delivery of new space remains limited, the focus continues to be on the design and build market. Nevertheless there are a limited number of sites in the Midlands that can be truly described as deliverable – that is cleared sites with planning permission and infrastructure already prepared.

Binks says: “The D&B market gets quite tight, and those that can deliver are in a strong position.”

Those able to deliver fastest include Hamdon Gate’s 16 acre J1 Rugby scheme formerly known as Central Park which it acquired off Prologis.

The site includes the three remaining development plots on the park. Two plots have detailed planning consent for distribution facilities of more than 93,400 sq ft and approximately 119,700 sq ft, although buildings of up to 140,000 sq ft can be accommodated subject to planning. The third plot, which is located at the front of the site, is suitable for industrial buildings from 20,000 to 60,000 sq ft subject to planning consent. Letting agents North Rae Sanders, Drake & Partners and Jones Lang LaSalle are quoting from £5.65 per sq ft.

Another site that could offer an immediate start is Opus Land and new development partner St Francis Group’s Blueprint scheme at Junction 9 of the M6 Motorway. There is planning for a 474,500 sq ft facility on the 22 acre site. Letting agents are Jones Lang LaSalle, Cushman & Wakefield and DTZ.

Schedule

There are other sites that could deliver in a nine month to two year schedule. These include IM Properties Birch Coppice that could accommodate up to 600,000 sq ft through letting agents CBRE and Colliers. Prologis has acquired a further 33 acre site from Ryton Properties, extending Prologis Park Ryton to a total of 98 acres. Infrastructure work is already underway, opening up the site for buildings in a range of sizes. It has planning for three units of 300,000 sq ft, 375,000 sq ft and 500,000 sq ft. Jones Lang LaSalle, Gerald Eve and North Rae Sanders are joint letting agents.

There are rumours that four deals are under way which could take up a lot of developable plots on the site. H&M are thought to be close to setting a deal on some 300,000 sq ft while UK Mail are also thought to be in negotiations for a further 300,000 sq ft. FedEx is thought to be about to sign for a 140,000 – 160,000 sq ft build-to-suit facility. Prologis is thought to be progressing further planning applications to enable it to respond more quickly to prospective occupier demands. Letting agents for Prologis Ryton are North Rae Sanders, Jones Lang LaSalle and Gerald Eve.

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.

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.

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 Dowley Turner Real Estate 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. St Modwen has sites at Longbridge, Coventry; Barton near Burton upon Trent, Hilton, Swadlincote, Worcester and Washwood Heath.

In Birmingham IM Properties has 60 acres of developable land remaining at The Hub that could accommodate up to 700,000 sq ft. Letting agents are Savills, CBRE and Knight Frank
Around Coventry Roxhill is promoting its Coventry Gateway scheme with joint venture partner Rigby Family Holdings which is headed by Sir Peter Rigby the owner of Coventry Airport where the development is proposed.

Plans for the £250 million business park have been approved by Warwickshire Council and Coventry Council for up to 4.4 million sq ft of development. However these have been called in by the Secretary of State.

The scheme is made up of two separate plots. The southern 180 acres is capable of providing 3.6 million sq ft of large B2/B8 warehousing, while the 67 acre plot facing the A45 has the potential for a variety of B1a) b) and c) configurations, along with hotel and other ancillary uses. Savills are currently sole agents.

Roxhill also has a 90 acre site in Rugby known as Rugby Gateway which it intends to bring forward with joint venture partner SEGRO. The site has a resolution to grant planning permission, subject to the conclusion of negotiations on the Section 106 Agreement. The planning application limits the floor space to 904,000 sq ft of B8 and 506,000 sq ft of B2 accommodation.