Friday 21st Oct 2016 - Logistics Manager

NDC or RDC: that is the question…

There is a growing realisation that not all locations can support a national distribution centre and it seems that after a spate of enquiries in the super shed category things have settled down in the North West.

Martin Mellor of Langtree Group has noticed a change: “In spite of the recent trend of building ‘super sheds’, we have noticed that there is still a strong demand in the market for industrial and distribution units for smaller occupiers.”

David Rowley of Savills agrees: “In 2004 there were probably a good few 500,000 sq ft plus requirements that went to the North West; last year there was just Next. Those big, big enquires are not coming through anymore. Maybe the North West has changed; maybe it is not really in the “super-shed” category – perhaps it is better suited to regional distribution centres rather than national ones. But, saying that, there are still big ones available. Both Gladman and Rosemound have buildings of 500,000 sq ft plus on the market. Someone looking at existing product will have to look at those. There is certainly an increasing number of enquires up to 300,000 sq ft mark.”

Howard George of DGi David George is of the same opinion: “It seems that demand in the North West is steering more towards requirements of between 200,000 and 400,000 sq ft, something that has also been brought about by national companies sourcing regional distribution units away from the traditional M6 locations. Rosemound has adapted to this with its Pioneer Point building through offering the option of a sub division to the market.” DGi Davis George are joint agents at the Pioneer Point scheme with Lamonts and M3.

Luckily there are a lot of units within this size range and there is evidence that these are now being snapped up with the inevitable concern that rents will rise as a result. Mr Rowley says he has just put a 150,000 sq ft refurbishment under offer to a 3PL at Premier Point on a 10-year lease with break at five years, for a rent in the region of £4 per sq ft. There is also strong interest from two parties in M2, a 100,000 sq ft unit, at Heywood Distribution Park which is being marketed at £5.25 per sq ft.

Of those that are available, quite a number are speculative, says Mr Rowley. He cites Big Sam, which is being developed by Arlington in a joint venture with Barwood. It totals 270,000 sq ft and is cross-docked with 12 dock levellers on each side. It boasts an eaves height of 14m, with a 50m yard to one side and a 40m one on the other side. It will be ready by the beginning of May 2006 and available at a rent of £4.75 sq ft. It also includes a 20,000 sq ft canopy (closed) and 50kn per sq ft floor loading.

In addition to Big Sam, Legal & General is marketing Fusion, a 200,000 sq ft shed, ProLogis has 350,000 sq ft at Crewe and Patrick Properties has Galaxy at 450,000 sq ft.

In addition to Rosemound’s Pioneer Point, Gladman Developments has two buildings in the region. It has just completed The Vault, a 600,000 sq ft speculative distribution warehouse at Liverpool International Business Park, next to Liverpool John Lennon Airport in Speke, South Liverpool. Now ready for occupier fit-out, this is the only large new distribution warehouse in the North West where the freehold is for sale.

In addition, Gladman has just announced plans to build a 375,000 sq ft speculative distribution warehouse on a 20.74-acre site in Runcorn, which it acquired from English Partnerships at Manor Park on the A558, close to Junction 11 of the M56.

The developer will apply for planning permission for one single distribution and industrial warehouse facility, which is expected to have an end development value of £20 million and could provide up to 400 new jobs.

As well as that Sara Jane Preston of NAI Fuller Peiser says that it won’t be long before Development Securities, the new owner of the former Vimto factory at Stonecross Park, Golborne, near Wigan, redevelops the unit. She says: “The property is perfect for a regional distribution centre or satellite warehousing as it is well-located at Stonecross Park at junction 23 of the M6 and East Lancs Road (A580), which is a prime industrial/distribution and logistics location in the North West. Our research into the Working Time Directive has highlighted the need for well-located distributed facilities close to urban areas such as this”.

The 160,000 sq ft unit on 7.65 acres was sold by soft-drinks firm Nichols for £6.125m. Nichols was represented by joint agents NAI Fuller Peiser and Davis George, Walker Sutton acted for Nichols as their corporate advisers. Development Securities was unrepresented but has retained NAI Fuller Peiser’s Manchester office as letting agents.

David Gladman of Gladman Developments has yet to be convinced with regard to the Working Time Directive he points out that: “Potential occupiers are actually more interested in saving money on property and operating more efficiently by exchanging a number of smaller buildings for one big new distribution warehouse.

“Even paying more rent per square foot for one larger new building, they benefit from additional eaves height and storage capacity, save money on administration and transport, and with a centralised management team ensure that their quality of service is improved.”

Andrew Pexton of GVA Grimley says: “There are a number of big sheds – over of 300,000 sq ft – in the market. There are currently five sheds completed and four under construction in the North West. The locations of some of these sheds are secondary, but this reflects the availability of land and the level of rents that they are able to charge.

There are several locations to come on-stream for big sheds, which include: Kingsway Business Park, Rochdale, Parkside Colliery, Newton-le-Willows, Basford East and West, Crewe, Maro, Carrington; Midpoint 18, Middlewich and Axis, Liverpool.

Although that sounds like a lot of space, the reality is that large tracts of land are becoming more scarce and that will mean that prices will rise and in turn occupiers should expect rents to rise as well – especially in more traditional locations within the region.

However, as long as a compromise can be met then the secondary location could offer a suitable alternative.

Mr Mellors says: “Poor land supply in the North West is a catalyst for increasing land values in the region. This isn’t being demonstrated however through rental levels which are experiencing a limited growth. Developers appear to be paying more and more for sites yet justifying their investment through lower investment yields, which is driving land values upwards.

“We have also noticed trends among developers who are now building in traditionally unpopular or unfashionable areas, such as East Manchester, North Manchester and areas of Merseyside. Our City Works development in Openshaw is an example of this – the area has received a large amount of investment in recent years and we have responded to market demand through providing quality, small, industrial units directed at the SME market.”

Gareth Middleton, of Lambert Smith Hampton, says: “Developers are now moving away from the region’s traditionally high value locations such as Warrington, which, although ideally located for the distribution market with excellent motorway links and greatly improved infrastructure, has one of the highest employment rates in the region and there is some shortage of unskilled workers. With the current moratorium on house building in place limiting any major influx of workers to Warrington in the immediate future, outlying areas look set to benefit, with developers prepared to look for areas with lower land values and in particular a plentiful labour supply.

“They are now looking at historically more secondary locations where they will have the ability to construct larger footprint sheds. Typically they are looking for sites between three and eight acres for smaller schemes or 20 acres plus for distribution hubs.

As a result, former secondary locations in the region, where land is easier to find and cheaper, such as around Crewe, Deeside, Ellesmere Port, Widnes, Runcorn and parts of Lancashire, are becoming more and more desirable. Some particularly significant deals are being done in West Lancashire. Although land values have been historically low in Skelmersdale, they have shot up over the past year to £200,000 per acre. Despite this increase, land is still cheaper than Warrington while rents are around 50p to 75p cheaper per sq ft and, most importantly, there is an extensive available work force. Skelmersdale is now considered by many to be a viable alternative to Warrington as it is also one of a very few locations in the North West with land available to accommodate a distribution hub, which realistically needs a site of 20 acres upwards.”

George agrees: “We are noticing is that a large proportion of the development is in locations that, until recently, have not been prime sites for developers. The higher levels of interest in these areas have resulted in a rise in land values, for example Pioneer Business Park, where Rosemound has recently completed the 625,000 sq ft Pioneer Point distribution unit, is achieving land sales at £250,000 per acre. Rents are concurring and are rising in the region, however surrounding areas appear to be stagnant.

“The attraction to sites in Merseyside and north of Manchester came from developers looking at other areas away from the more expensive prime sites such as Warrington and Trafford Park, demonstrating that the market is more price sensitive. Occupiers are also realising this and prepared to consider other locations, such as Merseyside or north Manchester to keep costs down.”

The east side of Manchester has really been opened up by the M60 and potentially there will be more development opportunities in the east as the west and south of Manchester become built out. According to Mr Middleton: “The east certainly offers good value for money with typical rents around 25p to 50p lower then the west. For example, a 20,000 sq ft unit with 10 per cent office content would be around £5.50 per sq ft at Trafford Park but would be nearer £5.00 to £5.25 on the east side.

“The recent, and highly visible 250,000 sq ft letting to Office World in Tameside has been the most significant deal of late in this sector of the M60. It freed up 150,000 sq ft at the company’s previous location at Oldham Broadway, which will soon be on the market.

“Demand remains high from local distribution companies but there is a shortage of freehold properties and the appetite remains strong for these.”

The scarcity of available development land was demonstrated by the recent case of the Walls site in Hyde. The eight acre site with 40,000 sq ft of accommodation went to best bids and was put under offer to a London investor. It is likely to be speculatively developed.

According to Pexton: “Land values are rising but it is almost at two distinct rates – larger sites for larger sheds offer economies of scale in build cost and developer can afford to pay more for the site.

“This is due to the fact that the build cost can be only circa £27 per sq ft as opposed to £40-£44 per sq ft for small units. The rental differential will be circa 50p to 75p per sq ft and the yield compression and the fact that most institutions will look for larger lot sizes can favour the big shed market. In effect, premium rents/values can be achieved for the smaller size or there is an owner-occupier looking to purchase them.

“The larger sites will tend to go for higher values.” Looking at rents Pexton says: “Rental levels have increased in the North West to reflect increase in build cost and land values. Effectively, rental growth on big sheds is limited to a degree to what the third party contractors can afford and what rental evidence there is to support these levels i.e. what their customers will pay per pallet. There is a minimum rental level to make development viable. Rental levels have moved on slightly but not at the same level as land values.”

Middleton says: “It is interesting to see in this region that industrial and B8 developers are now competing for sites against higher value uses such as residential – mirroring what happened in the city centre three or four years ago with offices and residential going head to head.”