Wednesday 28th Sep 2016 - Logistics Manager

Silver linings

Occupiers have found their options declining as good quality buildings have been taken up, but speculative development is now back on the agenda, says Liza Helps.

For months property pundits have been saying that available space is at a premium, lease lengths are getting longer, incentives are closing in and rents are hardening. That might be true, but not all is lost.

For the first time in years it looks like speculative development is back on the cards, not as a one off, but as a sustained element in the marketplace. This has been bolstered by a government initiative that will exempt all newly built commercial property completed between 1 October 2013 and 30 September 2016 from empty rates for the first 18 months.

Paul Weston, senior vice president at Prologis says: “Demand for logistics buildings is becoming increasingly specialised, so we anticipate that most future development will be built to suit occupiers’ specific requirements.

“However, there are a number of customers who prefer to take an existing facility or who need a new building very quickly. To anticipate these requirements, we have started construction work on two speculative buildings; at our Ryton site in the West Midlands and at Dunstable on the southern M1 corridor.

“Our aim is to provide the best occupational offer for customers in our market and speculative development in key locations is the next step in our strategy.”

Prologis is building a 310,000 sq ft distribution centre at phase two of Prologis Park Dunstable in Bedfordshire, which is close to Junction 11 of the M1 motorway. Earlier this year, Prologis gained detailed planning permission for two warehouses on its 32 acre Boscombe Road site. DC1, which is being speculatively built, will boast 285,076 sq ft of warehouse space with a 4,004 sq ft two-storey hub office and three storey 20,745 sq ft ancillary office as well as a separate gatehouse.

It will have 12.5 m eaves, 28 dock and four level access doors, 73 trailer spaces and parking for 240 cars. Letting agents are Savills and Colliers.

The second facility totalling 225,000 sq ft is being built at Prologis Park Ryton in the West Midlands and will boast 211,260 sq ft of warehouse space as well as 8,480 sq ft of two-storey offices as well as a 5,430 sq ft hub office and gatehouse. It will have 12.5 m eaves, 21 dock and four level access doors, a 50m yard with 43 trailer spaces and 211 car parking spaces. It is being marketed by Jones Lang LaSalle, Gerald Eve and North Rae Sanders.

Andy Griffiths, managing director of Prologis UK, says: “We believe this is the right time for us to start a measured programme of speculative development. Last year, we extended our Ryton and Dunstable sites in the first land acquisitions we have made since the economic downturn.

“We also took the decision to invest in securing detailed planning permissions to allow rapid project starts.”

Prologis is not the only developer keenly aware of the need for readily available warehousing in prime locations. IM Properties’ development director Kevin Ashfield says: “There is a severe shortage of good quality stock both regionally and nationwide, and against this backdrop of decreasing availability we are seeing increasing occupier demand. Occupiers need certainty over deliverability and few companies can wait for a design and build solution. We believe the time is right for speculative development.”

The Midlands-based developer is building two warehouses, measuring 165,600 sq ft and 168,900 sq ft, at its 400 acre Birch Coppice Business Park just off Junction 10 of the M42 motorway.

Speculative development

The smaller unit has already been pre-let while the larger property on a 7.8 acre site is available through letting agents Eagleton & Co, Colliers and CBRE.

The facility will boast 160,853 sq ft of warehouse space and 8,081 sq ft of offices. It will have a 12.5m eaves height, 15 dock and four level access doors as well as a large Euro door and loading dock, a 50m yard and parking for 50 HGVs and 120 cars.

SEGRO has also indicated that it will go ahead with the speculative development of the first phase of its Origin distribution warehouse site in Park Royal, London, subject to securing planning.
The development will cover 160,000 sq ft in three stand-alone buildings of 36,000 sq ft, 53,000 sq ft and 69,000 sq ft, all with secure yards. All of the units will be highly sustainable and constructed to a BREEAM “excellent” standard.

Letting agents are CBRE, Doherty Baines and Jones Lang LaSalle.

Steve Williams of Lambert Smith Hampton says: “There is money out there for speculative development but only in the big shed heartland [taking in the M1 and M6 Corridors].
Michael Alderton of Jones Lang LaSalle notes: “We are seeing a significant fall in availability of stock and funds are seeing that the time is right.”

Indeed it is rumoured that Jersey-funded Hamdon Gate Developments has signed up to forward fund the speculative development of a 110,000 sq ft warehouse with developer Roxhill at Brackmills Point in Northamptonshire.

Roxhill is already developing a 225,000 sq ft D&B facility for Dachser on a 16.38 acre plot which is due for completion in March 2014.

The site had been hotly tipped for speculative development before the pre-let to Dachser when it was thought that Scottish Widows was interested in developing out a 300,000 sq ft plus warehouse on a speculative basis with Roxhill. Letting agents at Brackmills Point are North Rae Sanders, Lambert Smith Hampton and Burbage Realty.

Williams notes that the big shed heartland offers just the right conditions for speculative development. “In the first three quarters of this year between Hemel and Birmingham total transactions amounted to around six million sq ft, with deals currently under offer totalling just under three million sq ft,” he said.

Named requirements

“There are estimated to be around 26 named requirements of 7.5 million sq ft with another six million agent led requirements. There’s only seven million sq ft of existing stock available and of that some 73 per cent is second hand.”

While this may please developers and landlords, these facts have led to some occupiers being forced to compromise to secure badly needed warehouse space.

Williams cites Storm 18, a 330,000 sq ft warehouse in Crick, which was bought by developers Harbut and Canmoor for redevelopment. But before that could even be considered, potential occupiers were seeking to lease it. It was not long before it was let to Norbert Dentressangle on a 15-year lease with a ten year break. The property fitted the bill for Norbert Dentressangle; the compromise was the lease terms.

Canmoor knew it could redevelop and let the property with ease, thus the occupier found that the lease terms for a second hand building were suddenly much sharper than expected. Nick Waddington of BNP Paribas Real Estate notes: “There are a few [funds and developers] who are wary of speculative development but now is the time. However all the fundamentals have to stack up and the main one is location.”

Williams agrees: “There is a wave of speculative development that is coming on in the next year in core areas – it will not be in peripheral areas and it will be cautious.”

Charles Binks of Knight Frank is not quite as bullish: “There will be sporadic speculative development rather than a wholesale return to what we saw prior to 2008. It is more likely that there will be more of what we have seen in recent years: the preparation of sites right down to the extent of securing detailed planning consent of a generic product that can be built in a mere six months.”

The market has definitely turned. Jon Sleeman of Jones Lang LaSalle adds: “Occupiers had it good in the middle of the recession when they had a lot of choice and could negotiate very competitive terms. Occupiers want choice and to pay as little as they can get away with and they want flexibility. But with diminishing choices they are going to have to pay more and agree longer leases.”

Even in this stark market there are glimmers of hope; while there are not many buildings there are a lot of sites says Alderton. “There could be a lot of competition between sites with developers looking to undercut each other having spent a lot of money on infrastructure and planning to get their sites oven ready.”

And if that were not enough of a glimpse the fact that investment yields have come in over the last six months has meant that suddenly longer lease terms are not a rigid requirement to make a deal stack up financially.

Alderton notes: “With yields coming in we will see developers and fund prepared to take a view on 10 year leases on build to suit deals whereas prior to this even a 15-year deal in some cases was not enough to make a deal stack up.”

Available Big Sheds

The number of prime new buildings that have never been occupied across the country is dwindling fast and there now remains a small handful over 250,000 sq ft.

In the Midlands these include Miller Birch and Standard Life’s Langley255 warehouse, totalling 255,000 sq ft at @ccess 26, Langley Mill, Derbyshire, a 30-acre industrial and distribution development near Junction 26 of the M1 motorway.

The warehouse boasts 12m eaves, 20 dock and four level access doors, fitted offices with comfort cooling and raised floors, as well as 68 lorry parking bays and 163 car parking spaces. The building has been on the market since it was completed in 2006. Letting agents are North Rae Sanders, CBRE and Innes England.

Then there is the Arrow building near Worksop, which was forward sold to AXA REIM and built by Gazeley. The 330,418 sq ft high bay distribution facility boasts four level access doors, 32 dock level doors, 220 car parking spaces, 91 HGV or trailer parking spaces, 15,600 sq ft of offices on two floors, 312,000 sq ft of warehousing, security fencing and a 300 sq ft gatehouse. Letting agents are GVA and Knight Frank.

The biggest of the available buildings is Moorfield and SEGRO’s LPP Corby (formerly known as Crackerjack). The 525,000 sq ft cross-docked warehouse has a 15m eaves height as well as 50 dock and four level access doors. It has capacity to store 77,000 pallets. The building has two service yards and parking for 98 HGVs and 336 cars. Letting agents are Burbage Realty, CBRE and GVA.

There are no brand new building over 250,000 sq ft to be found in the South East or in the North West however there are a number to be found in Yorkshire including two buildings of 334,781 sq ft and 291,143 sq ft at Sheffield International Rail Freight Terminal (SIRFT) that can be joined to create a mega-shed of some 630,000 sq ft. Both have 15m eaves, 50kN/sq m floor loading and 30 dock and two level access doors. The units are located one mile from Junction 33 of the M1 and are available leasehold or freehold through letting agents GVA, Jones Lang LaSalle, CBRE and Moriarty & Co.

Not to be outdone Evander and Anglesea Capital, the owner of the 1.4 million sq ft Sherburn Distribution Park near Leeds, also has two industrial units that could be combined to provide a 550,000 sq ft ‘super-shed’.

The 190,000 sq ft and 330,000 sq ft units were originally constructed on a common grid to allow their combination at a future date.

Other larger units in the region include SEGRO and Moorfield’s LPP Sheffield warehouse formerly known as Blade that was developed by Gazeley. The 412,000 sq ft facility offers 15m eaves, 40 dock and two level access doors, and a 50kN/sqm floor loading. It is located half a mile from Junctions 33 & 34 of the M1 motorway. Agents are CBRE and Knight Frank.

There is Valiant at Standard Life’s 930,000 sq ft First Point scheme in Doncaster, totalling 277,000 sq ft with 14m eaves height, fully-fitted offices with comfort cooling as well as 50m deep secure yards and ample parking for both lorries and cars. Letting agents are GVA and Colliers.

In the South West there is one building of note Block B of GE Capital’s massive 549,626 sq ft Crossflow 550 facility at Cabot Park in Bristol. Totalling 338,230 sq ft of self-contained warehouse, the facility benefits from a three storey office accommodation, 79 HGV parking bays and 251 car parking spaces.

It is being marketed by Savills, Knight Frank and Jones Lang LaSalle at a quoting rent of £5.75 per sq ft.