Tuesday 27th Sep 2016 - Logistics Manager

Every cloud has a silver lining

Acute shortage and strong demand means developers that grasp the nettle and develop speculatively are being rewarded with units being let prior to completion. Liza Helps reports.

Acute shortages and strong demand make the outlook for potential occupiers in the region grim reading. Richard Meering of CBRE says: “The logistics market continues to be blighted by a severe shortage of space and we expect this trend to continue in 2014. A position of net excess demand is likely to remain a feature of the market given the minimal amount of second hand space coming back to the market and a lack of newer Grade A buildings. In addition, land supply remains extremely limited with the position from 2015 onwards particularly unclear. As a result, the market will be increasingly squeezed over the course of the next 18-24 months.”

Indeed Alex Carr of Lambert Smith Hampton notes: “The West Midlands region has one of the most acute shortages of Grade A stock in the UK with a total Grade A floor space representing only 1.7 months’ supply.”

The shortages follow a plethora of deals in 2013 which saw 14.3 million sq ft of industrial floor space either let or sold. Further deals at the beginning of this year have seen a continued reduction in availability.

Deals concluded on existing buildings include Euro Car Parts taking the remainder of Prologis’ Tamworth 594 building totalling 258,000 sq ft at a rent of £4.95 per sq ft. Letting agents were North Rae Sanders and Dowley Turner Real Estate. The deal followed shortly after Hermes took the bulk of the former Focus Do-It-All warehouse earlier in 2013 on a five-year lease at £4.75 per sq ft.

In addition DAU Draexlmaier Automotive UK snapped up IM Properties second speculatively developed industrial unit at Birch Coppice prior to completion. It has taken a 15-year lease at a rent of £5.75 per sq ft. Colliers, Eagleton & Co and JLL advised.

Kevin Ashfield of IM Properties notes: “The deal with Draexlmaier was signed within seven days of agreeing heads of terms, emphasising the lack of available stock and the need for occupiers to act quickly to source their property requirements.”

There are a number of immediately available properties on the market but notes David Willmer of GVA: “Those big sheds that are available tend to be in the more challenging locations.”

These 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.

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

Then there is The Falcon at Fradley Park which 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 some good quality buildings but even these get snapped up, particularly if in central locations. DTZ and Burbage Realty have the 114,000 sq ft Swift 114 under offer. The property has 7 dock and one level access door, 11.56m eaves and is situated on a 4.37 acre self-contained site.

Close by, North Rae Sanders is marketing the 211,594 sq ft Swift Central on Valley Drive, Rugby, with joint letting agent Dowley Turner Real Estate. The building currently has 12m eaves as well as 26 dock loading bays of which 19 are dock levellers.

It was recently sold to Delin Capital Asset Management and is currently undergoing refurbishment. Letting agents are quoting £5.75 per sq ft.

Other good quality second hand premises include the ex-Pallet Network unit at Prologis Park Midpoint which became available in January 2014. It totals 312,500 sq ft with land for 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.

Another big shed is 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 site is two miles north of Lichfield and is accessed directly off the A38.

In addition, there is the former Sainsbury’s unit known as the Triangle totalling 228,000 sq ft which is being marketed at £2.75 per sq ft through joint letting agents North Rae Sanders and Cushman & Wakefield.

While there are shortages, there is a glimmer of hope – agents are reporting that speculative development is back on the cards.

Jon Sambrooks of DTZ says: “The possibility of a developer bringing forward speculative warehousing in the 100,000 – 200,000 sq ft size range are pretty high due to a lack of availability – and high demand for facilities in that size range.”

Peter Monks of Colliers says: “The West Midlands logistics market, although not seeing a boom period, is seeing a healthy number of deals leading to a continuing lack of good quality space in the market of 100,000 sq ft upwards. This has in turn led to a number of developers speculatively building units in the region.”

These include IM Properties’ two units at Birch Coppice as well as Prologis’ 225,000 sq ft warehouse at Prologis Park Ryton near Coventry, which boasts 21 dock and four level access doors, a 12.5m eaves height as well as 43 trailer and 211 car parking spaces. Letting agents are Gerald Eve, North Rae Sanders and JLL.

Ranjit Gill of Savills says: “Supply remains an issue but there are a few more speculative units being considered. Prologis has its 225,000 sq ft speculative building Ryton but speculative buildings are also being considered elsewhere. We anticipate two or three further announcements this year but these are likely to be sub 200,000 sq ft.”

Speculative development

Cameron Mitchell of JLL agrees: “The reality is we are going to see limited speculative development but not on a massively large scale at this stage – there is an element of caution in the market.”

Needless to say those developers that do grasp the nettle and develop speculatively have been rewarded as evidenced with both IM Properties speculative units at Birch Coppice being let prior to completion.

There has been an increased level of interest from funds willing to back possible speculative development in the region but on a small scale. Recently Cordea Savills teamed up with developer Canmoor to acquire a 7 acre site at Hams Hall in January. Planning has already been sought for a 140,000 sq ft facility which is thought would be developed on a speculative basis. Letting agents are Savills and JLL. In addition it is rumoured that Prologis is planning to speculatively build a 120,000 sq ft unit at its Prologis Park Midpoint scheme in Minworth. Letting agents are Savills, JLL and Gerald Eve.

For now though, Meering says the focus remains very much on design and build and those developers with ‘oven-ready’ sites, such as Rugby Gateway, will benefit from the substantial lack of choice.

“This will be a key site for the Midlands. The development, a joint venture between Roxhill Developments and SEGRO, extends to 120 acres and can accommodate up to 1.8 million sq ft of logistics space. Infrastructure works are due to be completed by the summer, and the site is expected to attract significant occupier interest.”

Rugby Gateway can offer bespoke design and build facilities to suit individual occupier requirements from 50,000 sq ft to 1 million sq ft. Letting agents are CBRE and Cushman & Wakefield.

Other oven ready sites 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 JLL 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.

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 700,000 sq ft through letting agents CBRE, Eagleton & Co and Colliers.

Prologis Ryton has further plots that could accommodate units from 100,000 sq ft to 350,000 sq ft. Letting agents for Prologis Ryton are North Rae Sanders, Jones Lang LaSalle and Gerald Eve.

Cross dock

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.

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 that could accommodate up to 4.4 million sq ft. Plans for the £250 million business park have been approved by Warwickshire Council and Coventry Council. 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.

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’ 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.

Rents: On the up

Rents in the West Midlands have been driven up, says Peter Monks of Colliers, as a result of a lack of good quality stock in the market. “Typically rents have risen by 10 – 15 per cent over the past 12 months with good quality existing buildings achieving headline figures of £5.50 per sq ft and new builds achieving up to £5.95 per sq ft.”

The upward pressure on rents is also likely to impact upon occupiers who choose to remain in their existing premises.

Ian Gascoigne, director of logistics lease consultancy at CBRE, says: “Rent review increases are looking more likely now than at any time in the last six years. The lack of supply is restricting occupiers’ choice to move and also increasing the ability for landlords to seek increased rents on existing premises. The next 12-18 months should see significant rental growth across the region.”

With regard to lease lengths, landlords are now holding out for at least a five-year lease terms, however – in some cases they are holding out for at least ten years – this is in comparison to the three year terms that were granted in the past to mitigate holding costs and accommodate the contract terms for 3PLs.

Incentive packages have also decreased to levels seen pre-recession. Although there is no definitive figure for a particular lease length, rent free periods are some 3 – 6 months less than they have been in the past.

Moving on to land supply, there is a lack of “oven ready” prime distribution sites in the region which makes the forecast over the next 12 – 18 months unclear for occupiers as the choice on locations is ever limited. This has had a knock on effect on land values which have in some cases seen an uplift of up to 20 – 25 per cent over the past 12 months.