Thursday 27th Oct 2016 - Logistics Manager

Opportunity knocks

Suitable land for the development of big sheds in the Midlands is as rare as hen’s teeth but like all generalisations that depends on how you look at it.

There are not many occupiers who would look to buy land and develop a 500,000 sq ft warehousing facility so the crux of the matter is that developers are finding it more difficult – so how will this affect occupiers?

While developers have a land bank to draw down on there will continue to be plentiful supply of opportunities for occupiers but as these land banks dwindle so too will the number of new sheds coming to the market and it is at this point that occupiers will feel the pinch.

To get a prognosis for the Midlands, one suspects a decent diagnosis is required.

Nigel Dolan of Gazeley says: “There is probably a difference between opportunities in the East and West Midlands; in the East Midlands there are fewer opportunities and those that are around are more likely to be national distribution centres whereas in the West there are smaller sites more served to the local and regional markets.

“There seems to be a steady flow of opportunities just not enough of them.”

Gareth Williams of Opus Land adds: “Distribution land is in short supply especially when you get to sites for bigger enquires, for example those looking for 500,000 sq ft and above.

“Finding sites that can accommodate up to 1 million sq ft are very, very difficult to find in either the West or East Midlands.”

Nick Waddington of Knight Frank says this is true of not just the Midlands “even elsewhere there are fewer and fewer big ready-made sites”.

Williams believes that local authorities have exacerbated the problem.

“There is a reluctance to allocate that land [for B8] as there is a perceived job allocation issue.”

However all is not lost; this problem and the increasing lack of supply of land for logistics use has been identified by both the West and East Midlands Regional Assemblies.

Both have been looking at and making recommendations regarding their respective spatial strategies.

In conclusion they have identified the importance of logistics to the region and have included it as an integral theme of their proposed Midlands Level Logistics Strategy part of the Midlands Way study.

An initial report recognised that key elements of the infrastructure for logistics really do need to be considered supra-regionally.

In addition the report noted that it was estimated that the region as a whole accounted for around 17 per cent of logistics companies in Great Britain and 20 per cent of logistics employment.

It argued that inter-modal facilities were likely to be a priority.

In conclusion, the reports says: “Logistics is key to connectivity which is integral to competitiveness: good logistics can add much to competitiveness while a weak logistics sector will undermine it.”

Mike Eagleton of Eagleton & Co says that both regional assemblies have stated that the respective regions require up to six large rail freight terminals.

“The West Midlands already has rail freight terminals at Birch Coppice Business Park and Hams Hall in the east of the region and work has started on a third at the former Ministry of Defence storage depot at Telford in the West of the region.

“All have land availability and at Birch Coppice developer IM Properties has announced the intention to speculatively build units from 55,000 to 250,000 sq ft.

In addition Birch Coppice has expansion land of 120 acres, which, with planning approval, could provide 2 million sq ft of strategic rail served distribution space.”

The opening of BIFT (Birmingham Intermodal Freight Terminal) at Birch Coppice has provided additional capacity for the avaricious appetite of the container distribution operators with an increase of daily train arrivals from one to six per day since the opening of the 35-acre facility last July.

Why has this situation developed? Why is there such a shortage of land? Robert Rae of North Rae Sanders explains: “Demand has remained strongest in distribution’s heartland, which is Milton Keynes, Leicester, Birmingham, and the Golden Triangle.

“This area has seen over six million square feet of warehouse take-up in 2006 alone. This includes lettings of 360,000 sq ft to logistics operation Walsh Western at Rosemound’s RDPark Hinckley and 300,000 sq ft to Unipart at ProLogis’ building in Nuneaton.”

Waddington says: “Retailers still favour the Midlands and where there are opportunities they will go there.

“You only have to look at Tesco’s at Fradley Park and Sainsbury’s at Pineham to see that they still believe in the Midlands.”

Indeed, ProLogis research “UK Logistics Property Markets — Hale and Hardy”, which it carried out with King Sturge, noted that the total take-up of floor space for big sheds across the Midlands since 2002 equalled 16.2 million sq ft, which is 30 per cent of the take-up recorded for the whole country.

“The East and West Midlands are getting the lion’s share of leasing,” says the report.

These deals tend to be good for single occupiers which gravitate to large distribution centres that can serve the entire UK.

“The most active markets,” says the report, “are those in Northamptonshire and Staffordshire.” These two areas accounted for 6.8 million sq ft and 5.2 million sq ft respectively or combined some 12 million sq ft, representing 22 per cent of the total take-up.

This is hardly surprising says Rae, as there is lack of supply of land for suitable big shed development in the industry’s heartland, which has encouraged high levels of take-up activity these areas.

In an effort to keep up with demand, developers have increased the output of supply.

ProLogis’ report notes that more than 25 per cent of all new distribution warehouse construction is occurring in just these two key markets, the East and West Midlands.

As of mid-year 2006 there was almost 3.9 million sq ft under construction, out of about 15 million sq ft in total.

This increase in activity has meant that developers are using up their land banks and as a consequence are looking more actively at acquiring more land.

Since this is already in short supply the tenets of basic economics come into force and land prices rise.

Recently developer Frontier Estates had to pay £340,000 an acre for the final plot at Parlison Properties’ A1M1Link scheme in Northampton.

The developer has bought the 12.5-acre Triangle site, which has planning permission for a 255,000 sq ft warehouse.

Graham Brown of Savills said: “The price achieved reflects the efficiencies of developing large sheds to meet market demand, particularly in the B8 sector. This is a record land price for the location.”

The Triangle is the final part of the A1M1Link site at Thrapston to be developed.

The A1M1Link is a 100-acre (40.5 hectare) warehouse and industrial development fronting the A14.

Parlison Properties was advised by Savills and Burbage Realty while Frontier Estates was unrepresented.

According to King Sturge’s latest “Logistics News”: “The East Midlands has seen significant growth in land values over the past year, up from £350,000 to £450,000 per acre (28.6 per cent).”

Northamptonshire has become so popular with warehouse developers and occupiers that land prices have been as high as £375,000 per acre according to Lambert Smith Hampton.

So what do higher land values mean for the occupier? Bruce Topley of Gazeley says: “With land prices going up, I think you will find rental growth too.”

Nick Ford of Lambert Smith Hampton explains: “Freehold and land values have gone up some 30 per cent in the past six months and the rental market has to adjust to this.

The fairly limited supply of new prime stock coming to the market should see these higher rents being achieved.

“In any case developers bringing forward schemes based on higher freehold values need to hold out for £6+ per sq ft to make their schemes work”

The LSH Weather Map, which provides market forecasts for the UK, predicts that rents for new prime industrial and distribution space in Birmingham will increase by 8.9 per cent from the current £5.75 per sq ft to £6.25 per sq ft by the end of the year.

Within the industrial estates throughout the region there are high levels of occupancy and a shortage of supply, which are constraining the ability of existing companies and those looking to locate into the region to invest and expand.

Ian Harman of Lambert Smith Hampton says: “Such is the shortage of supply and the strength of demand that land inflation is being created and is anticipated to continue. The issue is not now attracting occupiers, but providing the supply for them.”

Rae notes: “Available land for future development is scarce. Sites for big shed schemes are particularly rare in the Leicester, Birmingham, Milton Keynes area.

“Even locations where land was formerly comparatively plentiful, such as the Black Country, now have very little supply.

“Coltham Developments’ 340,000 sq ft (31,586 sq m) Citadel Junction scheme near Wolverhampton is one of the few schemes proposed in the area.”

To counteract this, Rae says: “Developer and occupier interest has begun to focus on comparatively untapped locations such as the A38 corridor between Birmingham and Derby.

“Developer Evans of Leeds can accommodate a single giant unit of up to 1m sq ft (92,902 sq m) at its Fradley Park scheme.”

Tim Richardson of Innes England agrees: “Distribution development has been concentrated on the A38 and M1 corridors with very little in Derby itself due to the lack of supply.

“The Derby area has a good supply of staff for employment at rates which are notably lower than those in the established distribution heartlands to the south of the region.”

Richardson notes that there is pent up demand, both locally and regionally for space.

He is currently joint agent with GVA Grimley on Evans of Leeds’ Derby distribution centre where they have had considerable success with lettings recently to the like of Network Rail on an 80,00 sq ft units and have two further units under offer totalling 200,000 sq ft.

An additional unit of about 34,000 sq ft is now available at a guide rent of £2.50 per sq ft.

Denby Hall and RD Park will help redress this situation and provide new distribution facilities, which will help satisfy both the existing demand from local occupiers, and regional requirements.

At Denby, which is situated off the A38 to the north of Derby, Innes England, North Rae Sanders and M3 are jointly marketing a new speculative warehouse scheme on behalf of Sladen Estates and Peverill Securities known as Denby Hall.

There are plans for four units of 30,000 sq ft, 80,000 sq ft, 120,000 sq ft and 240,000 sq ft, which will be available on a freehold or leasehold basis. Construction is due to start this summer.

Developer Rosemound is also active in this area with RD Park Derby, a 115-acre site situated off Raynesway on the south east side of Derby where units will be available from 100,000 sq ft to 1 million sq ft. Joint agents are Innes England CB Richard Ellis and North Rae Sanders. Buildings will be available 2008.

It is not just the big developers looking to take advantage of the land availability and occupier interest in this area, says Nick Waddington of Knight Frank.

He cites local developer Anson Properties, which is looking to build speculatively a 300,000 sq ft shed on the former William Cook Foundry in Wellington Road, Burton upon Trent. The development marks the first step of a three-phase plan to clear and flatten a contaminated 25-acre site and create Avro Business Park, which it is hoped will create up to 1,150 jobs.

The new warehouse building will have an eaves height of 12m with 24 dock and four level access doors.

It will boast a 50kN/sq m floor loading and have two story offices and be within a 6.8 acre secure yard with a maximum depth of 50m. The developer paid £8m for the 25-acre site. Standard Life is funding the development. Joint agents are Knight Frank and M3.

The remaining 14.9 acres will be developed in two phases. The joint agents are looking for a 10,000 sq ft pre-let.

As well as local developers, investors are also keen on the A38 corridor area as evidenced by Standard Life at Wellington Road and by the fact that Arlington Securities paid £14m for a vacant shed at First Point in Burton-on-Trent.

The 213,281 sq ft warehouse was acquired for Arlington’s newly set up distribution and warehouse investment fund and was bought from Eden Park Developments and Northridge Capital.

The warehouse, on high profile mixed use development Centrum 100, has access to the motorway network including the A50 Stoke-Derby link road, M1, M42, M6 and M6 toll. Joint agents were Savills and GVA Grimley.

As well as moving to more secondary locations within the region, Rae says: “The shortage of land has encouraged some developers to consider alternatives to straightforward speculative construction.

“We advised Opus Land on the acquisition of a 300,000 sq ft (27,870 sq m) warehouse in Burton upon Trent they intend to extend this as a refurbished cross-docked warehouse to 458,000 sq ft.”

Cambridge-based property company Wrenbridge is refurbishing a purpose-built unit at Stafford Park 7 in Telford that will offer 70,176 sq ft of warehousing space. It is available either freehold or leasehold.

The detached two-bay warehouse has an excellent working height to underside of haunch of approximately 27 ft (8.23 m). The property also includes refurbished ground and first floor office accommodation, with a separate external yard and car parking area.

Joint marketing agents DTZ and Bulleys report a good level of interest. John Sambrooks of DTZ says: “The extensive refurbishment of the unit is set to tap into the current demand in the West Midlands for high quality, well-located industrial accommodation.

“We can confirm that we have already received a number of enquires and we anticipate that interest will remain high, in particular from local occupiers looking to own their own property and investors looking to add to their property portfolios.”

Wrenbridge is also refurbishing Meteor 90, which it bought from Eagle Global Logistics.

The building comprises an 88,500 sq ft high bay warehouse in Northampton on the Round Spinney Industrial Estate. It has an eaves height of 9.2m. The property is immediately available on a new lease at a quoting rent of £5.35 sq ft, or for sale freehold at a quoting price of £6.85m. Joint agents are King Sturge and Marriott Hardcastle.

Funds are also looking at the refurbishment of older buildings to get a toehold in the market and are even buying good second hand stock.

A fund advised by JPMorgan Asset Management Real Estate (Europe) has gone down this route and has teamed up with Kilmartin Property Group to buy the former TDG warehouse at Grantham in Lincolnshire.

The building extends to 334,000 sq ft has eaves height from 7.5 – 22m as well as 15 dock levellers.

It is fully serviced to include lighting, heating and full sprinkler system together with full racking in a combination of wide, narrow and automated systems.

The warehouse has been bought with vacant possession and Kilmartin have appointed Fisher Hargreaves Proctor, King Sturge and Knight Frank to act as letting agents.

Quoting rent is £3.75 per sq ft.

Jim Bryan, director of Kilmartin says: “We saw this warehouse as an excellent opportunity of creating value by letting it in the market place and taking advantage of the strong demand for large warehousing combined with the extremely buoyant investment market.

“This is the only building of its size within 50 miles, which is fully racked, sprinklered and heated, which is ready for immediate occupation.

There is over £8 million of fit-out which has been transferred with the building”

The buyers exchanged unconditional contracts within four weeks of first seeing the warehouse.

As well as refurbishments another source of land is coming from former manufacturing sites. Such a development is The Hub being marketed by Knight Frank and M3. The complex totals more than 80 acres and is located between junctions six and seven of the M6 motorway.

It has planning consent for office, production and warehouse and distribution uses.

PRUPIM will develop the £150 million scheme funded by Prudential to offer bespoke high bay units built to individual requirements from 40,000 sq ft up to 750,000 sq ft.

PRUPIM is speculatively developing a 120,000 sq ft industrial/warehouse unit at The Hub this year.

However, Williams warns: “Although most large distribution sites over the short to medium term will be on redundant manufacturing sites because of planning attitudes, developers looking to change the use from manufacturing to distribution are not necessarily going to get it.”

Indeed Neil Starkie of Savills has grave concerns about Coventry council’s attitude toward B8 development.

However there are two new sites; the former 90-acre former Jaguar plant on Browns Lane in Coventry which has been bought by Arlington. It will be a joint development with Stoford.

Then there is the Peugeot site at Ryton also in Coventry. Starkie says: “This has been the one place where there has been a real lack of sites. Occupiers have had to go elsewhere. The situation will hopefully be redressed with these two sites.”

In addition to the manufacturing sites there are also old coalfields. Recent news has seen UK Coal partner with Gazeley to develop its 86-acre Lounge Disposal Point near Ashby de la Zouche in Leicestershire.

Gazeley has submitted plans for 1 million sq ft of space. Knight Frank advised Gazeley and Atisreal acted for UK Coal.

UK Coal has also selected Legal & General and Graftongate Developments as its development partners for a large-scale distribution park and industrial development at Ellistown, Leicestershire. The project covering initially 11.5 hectares (28 acres) will be undertaken in two phases.

The first phase will feature a single eco-design distribution warehouse facility of in excess of 250,000 sq ft on part of this disused coal transfer station.

The second phase will deliver a range of smaller units at the front of the site to offer modern accommodation to local occupiers. The project is expected to create up to 400 jobs.

Construction of the first phase building is anticipated to commence early summer.