Friday 21st Oct 2016 - Logistics Manager

All is not as it seems…

The perception that there are a lot of big sheds and not much demand in the North West is, like most generalisations, not strictly true.

In fact, according to Tom Davies of CB Richard Ellis: “The opposite is the case. If an occupier is looking for a particular size of building there isn’t much choice with exception of a couple of size ranges. For example there isn’t much choice if occupiers want a facility of around 200,000 sq ft.

“There has been a spate of speculative development totalling about 3 million sq ft but some has gone already and the extra square footage has not increased the supply of space, just filled the shortage we did have.”

However, that said, King Sturge’s latest Industrial and Distribution Floor Space Report reveals that despite market conditions, 17 schemes totalling 2,274,072.2 sq ft are currently under construction.

Steve Johnson of King Sturge says: “Most of the schemes currently under construction will have been committed prior to the impact of the current credit squeeze, which undoubtedly has had an impact on the ability to finance new development.

“By and large, these developments are catering for small to medium sized requirements, which will keep the market ticking over. Construction of big boxes has slowed down, which shouldn’t result in any significant short-term issues due to the amount of stock above 100,000 sq ft currently available.

“However,” he warns, “we are experiencing continual demand for big boxes which, if current take up levels continue, may result in an under supply in the medium term.”

The report highlights the fact that available floor space in the region grew 2.9 per cent (699,400 sq ft) to 25,210,680 sq ft by the end of 2007. During the second half of the year available accommodation in buildings over 100,000 sq ft increased by 4.2 per cent to 8,726,360 sq ft, which provided 34.6 per cent of the region’s available stock.

“At a time when the market is feeling the effects of the credit crunch, the North West is still experiencing significant levels of occupier demand. The majority of enquiries for big boxes are still in the 200,000 – 400,000 sq ft range, however, there have recently been a number of significant lettings in the 100,000 – 150,000 sq ft range on both new build and second hand buildings,” says Johnson.

These include a 100,000 sq ft letting in Chadderton to Clipper Distribution, a 100,000 sq ft letting to JJB Sports at SEGRO’s Heywood Distribution Park whereby the retailer secured the facility to store non-current products being removed from its retail outlets. King Sturge and Savills are the joint letting agents on Heywood Distribution Park.

Earlier this year Gateway, a 213,000 sq ft warehouse at Crewe Gates, just outside Crewe, was let to TDG. The facility was let on a five-year lease at a rent of £3.55 per sq ft. Lambert Smith Hampton acted for the landlord Highcross while King Sturge represented TDG.

Jason Print of Cushman & Wakefield says: “The North West market is very active, with good occupier demand flying in the face of credit crunch worries and headlines.”

Julien Kenny Levick of Colliers CRE agrees: “The current enquiries in the market are at encouraging levels and agents are not yet experiencing a slowdown in occupier demand with retailers are still dominating this sector.

“From a developers point of view the question is whether active occupiers will wait for a new build or opt for an already completed building. It is fair to say that some developers are now waiting for the design and build enquiries rather than speculatively developing sites – not a strategy that would have been adopted 12 months ago!”

Gazeley is hedging its bets with two schemes in the region one at Liverpool is speculative and the other at Skelmersdale is D&B – it had been thought that the developer would speculatively develop both schemes but Bruce Topley of Gazeley says: “There is a lot of product built in the North West and there needs to be a balance between the two. Because of the credit crunch and the abolition of empty rate relief there will be more and more D&B and because of our skill and speciality [on delivering D&B fast], this will play into our hands. Having said that there is still a lot of stock as yet.”

At its 45-acre site in Skelmersdale, Gazeley has planning permission for two D&B warehouses; one of 247,000 sq ft, which would boast 20 dock and three level access doors and one of 488,215 sq ft, which would have 32 dock and four level access doors. Both units would benefit from 12m eaves, a 50 kN/sq m floor loading and a yard depth of 50m as well as a host of eco initiatives. Letting agents are GVA Grimley and Colliers CRE.

The speculative unit in Liverpool totals 360,000 sq ft boasting 35 dock levellers, 15m eaves, a 50m-yard as well as a host of eco initiatives. Letting agents are CB Richard Ellis and King Sturge.

It is a point worth noting that Gazeley seems confident enough to speculatively build its Liverpool scheme as the area has been attracting a lot of interest in recent months.

According to Knight Frank, Merseyside has cemented its position as the distribution centre of the North West with a number of ‘big shed’ developments underlying continued confidence in the region, despite the credit crunch.

Land values across the region have also increased markedly in the last 12 months, according to the company’s latest Spring 2008 Liverpool Market Activity Report. The report reveals that the speculative large-scale industrial development taking place on Merseyside means there is 2.8 million sq ft of warehouse space now available. And it adds: “The question arises as to which of these units will be the first to secure a tenant.”

The report says: “Although currently many developers around the UK are hesitant to develop speculatively, there remains a confidence in Merseyside towards large speculative warehouse units, with a number due for completion.”

These include Rockpoint and Evander Properties’ 360,000 sq ft unit at Manor Park, Runcorn; as well as Gazeley/MetLife’s G Park, which is also 360,000 sq ft in size.

Claire Higgins, head of commercial research at Knight Frank says: “With the current lack of depth in the larger warehouse market, it will be interesting to monitor the terms negotiated by landlords of competing units.

“Nonetheless, despite the cautionary feel of the current market, these ongoing big shed developments are cementing Merseyside’s position as the distribution centre of the North West.”

Jane Dobie of Knight Frank adds: “The report highlights a number of positives for Liverpool and Merseyside in terms of its position as a distribution centre.

“It shows there is pipeline development at both extremes of the scale – the very large and the small – but little in the way of medium sized development.

Rockpoint and Evander’s Manor Park 360 scheme in Runcorn has recently reached practical completion. It totals 367,861 sq ft and has 15m eaves, 36 dock and three level access doors and is being marketed through M3 and CB Richard Ellis.

Other schemes already built in the region include Goodman’s Pioneer Point at Ellesmere Port, which offers just over 624,080 sq ft of high-bay distribution floor space to let in a single building. The facility features an eaves height of 18m, 62 dock and 18 surface loading doors with a 55m service yard. Scope exists for sub-division into units from 229,908.92 sq ft. M3 and Lamonts are joint letting agents.

Close by at LIBP Rockpoint and Evander Properties have The Vault, another whopping shed totalling some 620,000 sq ft. The building was completed just under a year ago and boasts a similar specification to manor Park with 15 m eaves and the ability to provide a floor loading up to 65 kN/sq m.

As well as buildings built or under construction there are a number of schemes poised to come to fruition. These include St Modwen’s Stonebridge Park, a 70-acre ‘gateway’ business park fronting the A580, one of Liverpool’s main arterial roads, which has just secured detailed planning permission.

Key Property Investments, the joint venture between St Modwen and Salhia Real Estate, in partnership with Liverpool Land Development Company, is due to start development shortly on an initial 57,000 sq ft scheme.

Stonebridge Park will ultimately total 30 acres of office and industrial units with a landmark water feature running the length of the development’s one-mile frontage to the East Lancashire Road.

The first units are available to let or to purchase through the joint agents Matthews & Goodman and King Sturge.

Pressing ahead

Then there is Helios City’s Buckshaw Link in Chorley where it has recently released 120,000 sq ft of prime industrial and distribution accommodation. The developer, in partnership with CBRE Investors, has completed phase one and is pressing ahead with phase two which is expected to complete in May. The second phase will comprise 105,000 sq ft and will be ready for occupation in June. King Sturge and Bailey Deakin Hamilton are joint agents on the scheme.

Knight Frank says prime rents on Merseyside are around £5.50 per sq ft for new smaller units and freehold prices are now in the region of £85 per sq ft. It adds: “The larger distribution facilities are now closer to £4.25 per sq ft and quoting rental levels have been reduced on a number of the larger units.”

The report also highlights that land values “have increased markedly in the last 12 months”. To the south of the city in Speke, land is available at £375,000 per acre for small plots – although a fairer reflection of land prices on Merseyside is £300,000 an acre.

There is good news for occupiers says Print: “The forthcoming changes to empty rates legislation means that very competitive deals are available to occupiers, which is likely to continue in the short term until the supply of existing buildings is reduced.”

However he warns: “Following this we could be faced with the situation of reduced speculative development, due to changes in empty rates legislation, which could result in an increase in the cost of existing accommodation should demand continue at the current rate.”

Andrew Aherne of Lambert Smith Hampton agrees: “As a result [of the Empty Rates abolition] those buildings that were not previously being offered to the market may now be brought forward to mitigate the additional holding cost. Also those letting property may be more anxious to secure earlier lettings and to achieve this may be more inventive in achieving transaction.”

With so much focus on rent and keeping that down to attract occupiers, there has to be a catch and that is flexibility – particularly in lease terms. It will be a lucky occupier who secures a five-year deal on any of the properties in the market at the current time without still having to pay handsomely for it.

For some agents and developers flexibility is the key. Midpoint 18 agent, David Brooks of King Sturge says: “We believe that the key to success in securing occupational interest in today’s ‘big box’ market in the North West, is the flexibility of the offer. This is not necessarily just down to price, or indeed length of lease.

“These additional requirements invariably involve a need for more land and, as such, a lower site density. They include: additional trailer parking; cross docking; additional offices; the ability to either expand the facility in the future, or develop alongside another facility, which is to be brought under the same management regime. The vast majority of speculative warehouse units of between 200 up to 600,000 sq ft in the North West have been developed in isolation and as such will struggle to accommodate many of these additional requirements.”

Unit 75 at Midpoint 18, he says, “comprises circa 350,000 sq ft; is already cross docked; is sub divisible; is available freehold or leasehold; but more importantly, the development partnership of Pochin and Northridge Capital, own/control substantial, adjoining landholdings, which can potentially provide virtually all the additional requirements which an occupier may require.”

Incentive packages

Looking at what occupiers can expect in the future, Andrew Pexton of GVA Grimley says: “Rental levels are coming under pressure to increase, and land values will have to stagnate or drop due to the yield shift for development to continue on a leasehold basis. Developers will need to see some movement in rents or land values to facilitate them obtaining the same return that they were able to achieve 12 months ago. We are currently seeing funds/developers cut the incentive packages on some buildings to produce the necessary returns.”

However, although developers seem a little shy with development, that does not mean they are not actively looking for sites for the future. Sara-Jane Preston of Atisreal, who is advising on the sale of Bayer CropScience’s 40 acre former manufacturing site on Gorsey Lane in Widnes, Cheshire, says: “We have already had a substantial amount of interest, not only from developers looking at the site for office and industrial development but also developers looking at mixed use opportunities, subject to planning.”