Demand for design and build sites is high, but is there enough land to satisfy it? Liza Helps reports.
Finding immediately available Grade A space in the right location is as rare as hen’s teeth at the moment. It comes as no surprise then to find that the majority of occupiers looking for space are opting to go down the design and build route.
Across the UK the current supply of warehouses over 100,000 sq ft is continuing to fall. Eastern England is suffering this trend more than any other area with the supply of new and refurbished space due to run out within fifteen months. Across the UK as a whole new and refurbished space is due to be fully taken up in two years and total space just over three years. In London the figure has slipped below 1.5 years for the best space and is only marginally higher for all grades of warehousing. If take-up exceeds current expectations then markets could find that there is a supply-demand imbalance sooner.
Guy Grantham of Colliers International says: “The mismatch between supply and demand is only likely to become more pronounced during 2013 with so little new space coming to market. “These figures come despite the fact that overall industrial take up in the UK fell by six per cent year on year in 2012. The main factor behind this fall in take up has been the lack of suitable product in the right location for businesses. Potential occupiers seeking top quality, modern warehouses are having to sign up to design and build schemes to guarantee a site that will meet their requirements.”
Figures from Jones Lang LaSalle note: “The level of take-up involving BTS [Build to Suit] units in the first half of 2013 increased dramatically. Take-up in the first half of this year involving BTS units was higher than total annual take-up of BTS units in 2009, 2010, 2011 and 2012.”
Paul Farrow of CBRE says: “There has been a marked increase in design and build activity from occupiers due to an acute lack of quality logistics space available in the core markets.”
Research from CBRE concludes that a total of 7.05 million sq ft was taken during the first half of 2013. As in 2012, pre-let design and build (D&B) transactions have been the dominant sub-group within the sector during the first half of 2013. Such deals have accounted for 71 per cent of all new space acquired by occupiers.”
The big question is are there enough sites ready to satisfy demand? Nigel Godfrey of Gazeley says: “There is not enough consented land or land that is likely to get consent in the places where it is needed by customers. By that I mean with good access to the major road infrastructure, labour, and the markets that are to be served. That I am afraid comes down to the legacy of the UK’s inefficient planning process.”
And Gareth Osborn of SEGRO reckons: “You can find sites but not necessarily across the country. It all depends on timescales for delivery.”
Richard Evans of Jones Lang LaSalle says: “There is certainly enough land in the UK to accommodate demand with certain areas having a greater selection than others.”
All agree that the South East has the tightest availability due to the fact that it is more challenging to bring forward new sites for development. Evans says: “It is much harder to bring forward land for development here than in any other area. It takes longer to prepare the site and to secure planning.”
It took London Gateway some ten years to secure planning from inception. Osborn agrees, adding: “The same is true of the North West where there have been good sites available but remediation and planning issues and getting utilities onto the sites have all caused delays.”
The big issue for many sites is that they only have outline planning permission so an occupier looking for occupation within a year could struggle. “A lot of sites have outline planning permission, there are a limited number that have detailed planning consent and a lot have delays in getting infrastructure in,” says Osborn. “An occupier looking to secure a 300,000 sq ft D&B does not have hundreds of sites to choose from – probably only a couple of dozen nationwide.”
That is not to say that developers are not progressing schemes. Goodman has spent close to £150 million into its 800 acre UK land bank to ensure that planning and infrastructure are in place and the sites are ready for construction. It currently has 14 strategically located sites across the UK market capable of delivering over 14 million sq ft of logistics space. Four of Goodman’s UK sites can deliver facilities of over one million sq ft, and eight are capable of delivering over 500,000 sq ft of logistics space. Its strategy has paid off. The company has recently secured a D&B deal with Kuehne + Nagel Drinks Logistics and Heineken for a 632,000 sq ft warehouse and office unit at its 165 acre Derby Commercial Park near Derby in the East Midlands.
Charles Crossland of Goodman notes: “Historically, D&B required a longer timeframe for delivery. However, Goodman’s development strategy, which focuses on investment in infrastructure and planning throughout our 1,000 acre UK land bank, ensures that sites are ready for rapid development following pre let agreements.
On the KNDL deal, he says: “Working to a fixed deadline, the customer requires that the building is not only finished but fully operational by March 2014, just eight months after receipt of planning consent. Because of the necessary infrastructure and planning already in place, this timescale is achievable.”
SEGRO and development partner Roxhill are ready to go on their Rugby Gateway scheme in the West Midlands. They will be starting on site in October and could hand over a functioning warehouse facility to an occupier by summer 2014. The 90 acre site can accommodate up to 1.8 million sq ft and offers bespoke design & build facilities to suit individual occupier requirements from 50,000 sq ft to 1 million sq ft.
Jones Lang LaSalle is marketing Prologis and M&G Real Estate’s Hartland Park in Hampshire where the developer is progressing forward with infrastructure works. The 119 acre scheme could accommodate up to 1.32 million sq ft.
Gazeley has a number of sites with detailed planning permission ready to go including Magna Park Milton Keynes where it has just secured a further 625,000 sq ft warehouse for John Lewis. Alex Verbeek of Gazeley says: “The building has been designed to match the company’s specific requirements and with planning consent already in place, we are on track to deliver on time and on budget.” The building is expected to be operational by Summer 2014.