Monday 26th Sep 2016 - Logistics Manager

Demanding times for big sheds

There is a healthy demand for warehouses over 500,000 sq ft, and it doesn’t look like changing any time soon. Liza Helps reports.

Grade A warehouse availability is 79 per cent below the pre-recession peak as occupier demand soared in 2013, according to Jones Lang LaSalle’s latest UK Big Box Industrial & Logistics report.

At the end of 2013 total Grade A availability was around 17 per cent lower than at mid-2013, with new space down by 11 per cent and second-hand availability down by 21 per cent.

In other research Gerald Eve’s Prime Logistics study noted that total availability over the past year has fallen to just 9.8 per cent with high quality (new and refurbished) space availability just 3.2 per cent – its lowest level recorded, standing at just 10.4 million sq ft at the end of 2013.

Such is the shortage that you can count the number of large immediately available Grade A warehouses over 500,000 sq ft in the UK on just one hand. In fact even warehouses over 350,000 sq ft are rather scarce. But does it matter?

Paul Farrow of CBRE says: “In the past few years looking at take up of warehouses over 100,000 sq ft, 35 per cent of those were in fact over 500,000 sq ft; that proves in my mind that while the XXL market is rarefied it is still a significant element of the market and will continue to be going forward.”

Nick Waddington of BNP Paribas Real Estate, comments: “There still appears to be a healthy demand for big sheds of more than 500,000 sq ft in the UK. There is a good mix of those requiring space, including companies such as Amazon, who are still looking for mega sheds in areas such as the North West, North East and South East, the big supermarket operators like Waitrose, as well as the value supermarket operators, such as Aldi.

“Demand is also continuing from retailers, such as Superdry and Staples, who have outstanding requirements for the South West and Midlands respectively, and Ocado, which is looking in either the North West or the South East. In addition, the parcel operators, such as Hermes and DHL, still have outstanding requirements.

Bigger warehouses

“There is nothing to indicate that those larger buildings are not what the occupiers want,” adds Charles Crossland of developer Goodman: “There is still demand for the bigger warehouses from retailers and increasingly from manufacturing and parcel companies. Recently we negotiated a 330,000 sq ft facility for GeoPost DPD at Hinckley which is Europe’s largest parcel sorting office and they have other requirements as well. These trends will continue and I don’t see that particularly changing anytime soon.”

Goodman also secured a D&B with Kuehne & Nagel for a 632,285 sq ft distribution centre at the developer’s 165 acre Derby Commercial Park just off Raynesway, to the north of the A6 Alvaston Bypass. Joint letting agents were Innes England, North Rae Sanders and CBRE.

Andrew Gulliford of SEGRO says: “The hierarchy of logistics is changing; it is becoming more critical to the bottom line. While the store hierarchy has not changed so much, if the retailer is in multichannel and doing that in tandem or even if the retailer is pure play or Omni channel with one set of inventory to serve, however that inventory is purchased, basically the goods are being held further up the supply chain necessitating larger facilities. This trend is certainly connected with the internet side of growth.”

Paul Weston of Prologis agrees: “The massive changes in the industry, with the increase in omni-channel retailing, is creating a demand for ever bigger warehouses.” He cites Sainsbury’s taking 1 million sq ft at Prologis DIRFT II and John Lewis taking two 600,000 sq ft units at Gazeley’s Magna Park Milton Keynes to further his point.

“However, whether we need immediately available big sheds is another matter,” says Farrow. “In 2013 pre-let and design and build transactions accounted for 75 per cent of all take-up on new buildings. For the very largest logistics warehouses of over 500,000 sq ft, D&B has almost exclusively been the route by which new space has been acquired.”

Jon Sleeman of Jones Lang LaSalle says: “Rising demand and a lack of immediately available floor space led to the majority of new space comprising of build to suit (BTS) space. At take up of 10.8 million sq ft, equating to 77 per cent of available floor space, this is the highest annual take-up recorded for BTS since 2001.

Richard Evans of Jones Lang LaSalle’s added: “This year we will be working on more BTS and speculative developments. Last year we saw another increase in retailer demand for big box units and we are confident that this year online grocery retail will be expanding. This will lead to each of the major supermarkets looking to open at least one dot-com warehouse in the South East.”

Demand

Robert Dunston of GVA agrees: “There is a demand for 250,000 sq ft plus sheds and at Omega, we have two parties looking for sheds of 500,000 sq ft plus and 250,000 sq ft plus.” He points out that in just one week he had three enquiries for 250 – 450,000 sq ft and another for a 300 – 600,000 sq ft plus facility and another in excess of 350,000 sq ft.”

In the last 12 months more than 1.7 million sq ft has been transacted at Omega, near Warrington in the North West, alone with Travis Perkins securing a 630,000 sq ft warehouse with 70,000 sq ft mezzanine, parcel delivery company Hermes taking 140,000 sq ft and grocery and food supplier Brake Bros securing a deal for a 198,000 sq ft warehouse on Omega North while over on the adjacent site, Omega South, Asda is rumoured to be the occupier for a 600,000 sq ft £100 million logistics centre being brought forward by Bericote.

Joint letting agents are Jones Lang LaSalle and GVA.

Simon Lloyd of DTZ adds: “The buildings in that area of the market [500,000 sq ft plus] will only have a smaller number of potential occupiers. Those buildings over 500,000 sq ft are more specialised and those wanting that size will wait for the right building to be built for them rather than take them off the peg. Ideally, they want something that suits their specific requirements.”

“There is demand,” reiterates Dunston, “but nobody seems prepared to spec build. In fact there is no need to as these buildings are very specialised, so why put your neck on block when you can knock them out on a bespoke basis within 15 – 18 months?”

Indeed, says Gulliford, XXL warehouses in recent years have tended to be very specialised and located in secondary locations where there is access to a large labour pool. “The reason why they are unlikely to be speculatively built is that from an investment perspective, would someone else occupy [the facility] if that particular party were not there? With a bespoke element added in and the answer is that any investor would be quite careful about those types of facilities.

“In addition investors are also exceedingly careful of anything other than a core location. Investors need to know that there will be longevity of investment income.”

Weston also points out the empty rates issue: “While you may get cheap land and indeed get the right plot size you have to factor in empty rates – speculative development is not a straight forward decision anymore.”

There has been some select speculative development mostly under 150,000 sq ft in core locations such as the South East and London and in the Golden Triangle. However, Prologis is speculatively developing a 310,000 sq ft warehouse at its Prologis Park Dunstable scheme in Bedfordshire located just off the M1 motorway. Weston explains the developer’s rationale: “Firstly our portfolio is 98 per cent leased and we need to get product on the market and secondly the location is key. A lot of property has been let in the last five years on the M1 corridor in that size range.”

The majority of developers have been actively securing sites, planning, and in some cases pushing forward with infrastructure works on sites in most regions, but sites for the very largest sheds are still quite rare particularly on schemes that are deemed oven ready.

Ground conditions

Campbell Carruth of Harworth Estates, which has just secured planning for a 4 million sq ft distribution warehouse park in the North West known as Logistics North, says: “In terms of land availability to support big sheds the number of available sites could be limited. Sites cannot always support the largest warehouses once ground conditions, shape of the site and appropriate infrastructure is taken into account. While there might be land that can technically accommodate such facilities the reality may not quite match up.

“There can be many barriers which will prevent the opening up of sites from existing Section 106 through to the lack of supporting infrastructure.”

Nigel Godfrey of Gazeley agrees and adds: “Where would potential occupiers want [big warehouses]: usually in relatively low cost location where there is adequate supply of labour, where they might be rail connected or form part of a network, so proximity to market and major infrastructure will be relevant as will be the existence of a plot size of 50 acres plus to accommodate 1 m sq ft with benefit of planning permission. It’s a tall order.

“There are lots of plots which are capable, theoretically, of taking a unit of that size, but without planning they are useless. Planning lead times get no shorter. The timing of securing planning and securing deliverability is key. How long is a piece of string – it can take many years to secure planning but that needs to be factored in as it is a key decision.”

Indeed David Willmer of GVA says: “With 40 per cent of big transactions taking place in the Golden Triangle it is not surprising that several of the big developers are looking to bring forward substantial schemes in the area.”

National importance

Prologis is expecting a decision regarding its DIRFT III application later this year. The site could accommodate up to 76.8 million sq ft and is one of the most progressed schemes of national importance in the Midlands. Roxhill still has to wait on its applications regarding East Midlands Gateway which could accommodate 6 million sq ft and Coventry Gateway which could accommodate 4 million sq ft.

There are sites in the greater West Midlands that can accommodate any immediate demand, these include the Gazeley joint venture with Harworth Estates at G. Park Ashby that sees the developer with planning for an 850,000 sq ft cross docked rail connected facility. Also in the Midlands Goodman has outline planning permission for a single unit up to 1.2 million sq ft at Derby Commercial Park while SEGRO and Roxhill’s 125 acre Rugby Gateway scheme in the West Midlands can accommodate up to 1.8 million with a single unit up to 925,000 sq ft.

In the North East Harworth Estate’s Logistics North can take an individual unit of up to 1 million sq ft while in the North East Gazeley has its G.Park Donnington site near Rossington in South Yorkshire which could take a single unit of 1 million sq ft subject to planning.

Schemes capable of securing mega sheds in the South East are more difficult to come by with just two in the whole region capable of securing a 1 million sq ft warehouse; DP World London Gateway which has already secured a £200 million deal with retailer M&S for a 900,000 sq ft portcentric distribution centre, and Goodman’s 115 acre Kingsnorth scheme in Kent which has permission for a 1.2 million sq ft facility.

Available Mega Sheds

The biggest of immediately available warehouses in the country at present is Moorfield and SEGRO’s LPP Corby, Northamptonshire. The 525,000 sq ft cross-docked warehouse has a 15m eaves height as well as 50 dock and four level access doors. Letting agents are Burbage Realty, CBRE and GVA.

Close by, though second hand, is the 511,000 sq ft warehouse at Max Park, Corby which is being vacated by Wincanton. It will be available on a sublease or assignment through Savills and Cushman & Wakefield.

Further north in the East Midlands is the 330,418 sq ft Arrow building near Worksop, which was forward sold to AXA REIM and built by Gazeley. Letting agents are GVA and Knight Frank. While over in the West Midlands Goodman has The Citadel at Junction 10 of the M6 motorway totalling 321,000 sq ft. Letting agents are Bulleys, Knight Frank and Jones Lang LaSalle.

There is also the ex-Pallet Network unit at Prologis Park Midpoint. It totals 312,500 sq ft with expansion to 470,000 sq ft. It is being marketed by Savills, Jones Lang LaSalle and Gerald Eve.

In the North West there are two units at Lancashire Business Park comprising a 336,646 sq ft speculative scheme by Lancashire County Developments. The two adjoining 168,000 sq ft units can be linked to create one 336,646 sq ft facility or can be subdivided from 76,500 sq ft. Lambert Smith Hampton and Jones Lang LaSalle are joint letting agents.

Also in the North West is Logicor’s Onyx 350 building. The 343,000 sq ft former Hager Meyer warehouse in Runcorn is being let through Cushman & Wakefield, B8 and Moriarty & Co. Then there is also the 471,698 sq ft XL Building on Statham Lane in Skelmersdale formerly occupied by Comet. Letting agent is Jones Lang LaSalle.

In Yorkshire Evander and Anglesea Capital, the owner of the 1.4 million sq ft Sherburn Distribution Park near Leeds, has two industrial units that could be combined to provide a 550,000 sq ft super-shed.

Other larger units in the region include SEGRO and Moorfield’s 412,000 sq ft LPP Sheffield warehouse formerly known as Blade that was developed by Gazeley. Agents are CBRE and Knight Frank.

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, which totals 338,230 sq ft of self-contained warehouse. Letting agent is Savills, Knight Frank and Jones Lang LaSalle.