Sunday 4th Dec 2016 - Logistics Manager

North West: Can’t get no satisfaction…

With rents rising, there is a return to speculative development, but the question is: is there enough to satisfy demand? Liza Helps reports.

This article appears in the January 2016 issue of Logistics Manager

This article appears in the January 2016 issue of Logistics Manager

There is no doubt about it, speculative development is back on the cards with some 14 schemes over 100,000 sq ft either close to being completed or underway, providing a total of 2.4 million sq ft. A further 2 million sq ft is thought to be in the planning process – the picture looks rosy.

Daniel Burn of JLL says: “A year ago the return of speculative development was still a murmur until the 185,000 sq ft shed at Evander’s Revolution Park in Chorley effectively broke the seal on the ‘big box’ spec market in the region. Since then a steady flow of schemes have been announced – the largest, a 357,000 sq ft unit due to be delivered by Exeter Property Group at Logistics North in Bolton.

“The 14 speculative schemes larger than 100,000 sq ft, currently either under construction or committed to, is clear evidence of strong developer appetite. These sites are due to inject over 2.4 million sq ft of industrial space into the region over the next 12 months, and will come as good news for occupiers in the market who have been faced with limited supply for a number of years.”

The most recent speculative development announcement saw LondonMetric agree a £30 million forward funding deal with Omega Warrington Ltd – the joint venture between Miller Developments and KUC Properties in partnership with the Homes and Communities Agency – for a 356,000 sq ft warehouse facility on Omega South in Warrington.

The building will be developed on an 18.9-acre site in Zone Seven, an area within Omega South that was granted outline-planning consent in May 2014 for 2.1 million sq ft of manufacturing and logistics space.

Full consent is due in time to allow construction to commence in March 2016 with completion in December 2016. The warehouse is expected to generate a rent of £2.2 million a year, or roughly £6.18 per sq ft. LondonMetric was advised by DTRE. Joint agents on the Omega scheme are Bilfinger GVA and JLL.

Andrew Jones, chief executive of LondonMetric, says: “On-going occupier demand for logistics, and a lack of availability, continues to drive a significant demand/supply imbalance, particularly for well-located modern assets.”

It is a combination of rising rents and continued lack of demand that is driving the interest in speculative development.

Chris Brown of Cushman & Wakefield says: “Around 43 per cent of all take up has been for new build or D&B. There is an appetite to pay for new build, and a flight to quality, showing positive signs that that speculative space will not sit around for too long.”

Rob Taylor of Knight Frank agrees: “There is a lack of stock in the right locations and units that are coming forward speculatively are going fast.”

He cites the case of New Capital Knowlsey’s Venus 110 in Liverpool, which has gone under offer before completion. It is rumoured that Amazon has taken the building at a rent of £5.25 per sq ft, though no party has come forward to confirm or deny.

The building totals 110,000 sq ft and boasts 13m eaves, 10 dock and two level loading doors and a 50 kN/sqm FM2 floor. Letting agent on the scheme is B8 Real Estate.

Other speculative units coming on to the market include a large warehouse at Harworth Estate’s four million sq ft Logistics North scheme in Bolton. First Industrial, with the backing of US property investment company Exeter property Group, has started developing 360 at Logistics North, a 357,700 sq ft distribution facility on an 18.3 acre plot.

The building, which is due for completion in the summer of 2016, will have 15m eaves, 34 dock and two level access doors as well as 74 HGV and 280 car parking spaces. Letting agents are Savills and JLL.

M&G Real Estate is also looking to develop speculatively. It is constructing two units at Logistics North: one of 225,031 sq ft and the other totalling 175,087 sq ft.

David Crowley, director of logistics and industrial at M&G Real Estate, explains: “There is a limited supply of grade A warehouses of this size in the region, and with tenant demand remaining resilient, and rental growth evident due to limited building supply, this investment provides us with access to prime, well-specified and located assets.

B8 Real Estate acted for M&G Real Estate, while JLL and DTZ represented Harworth.

American investment company Harbert Management Corporation is also building speculatively with two units totalling 212,830 sq ft at Heywood Distribution Park; one unit will total 67,510 sq ft and the other 145,320 sq ft. The development is being constructed by Russells Construction and is expected to be ready for occupation in Spring 2016.

Huw Davies, head of asset management at Harbert Management Corporation, says: “Although many developers continue to talk about speculative development, we are aware there is nowhere near enough good-quality stock available to satisfy demand and the time is right to bring these two units to the market.

 

Discussions

“We are already in discussions with a number of occupiers, which bodes well for the future success of the scheme,” says Davies.

Letting agents are B8 Real estate, Savills and JLL. Heywood Distribution Park is managed by CBRE Asset Services and currently comprises 1.8 million sq ft of warehouse and industrial space across almost 200 acres.

Paul Cook of CBRE notes: “In one respect new space is coming out of the ground but it is not keeping up with annual average take-up.”

Some occupiers are still finding securing the right building in the right place near on impossible due to the shortage of immediately available stock. Optima Logistics started looking for space in Warrington but landed up taking space at Prologis Middlewich more than 20 miles away.

Amazon could not find a suitable large scheme in the vicinity so has taken an option on MAG Property and Stoford’s 270,000 sq ft speculative Airport City scheme at Manchester Airport. It intends to expand the development to 654,000 sq ft and the deal will go through subject to planning.

Julien Kenny-Levick notes: “The question of whether occupiers should choose D&B over existing stock is a combination of the size/functionality/location of the new speculative stock coming to the market.

“In excess of 2 million sq ft is coming to the market in the coming months ranging from 60,000 sq ft to 360,000 sq ft, but if occupiers want a large facility then they will have to look at D&B and also if they require a more un-usual configuration or eaves height and so on, again D&B will have to be considered.

“For example many occupiers require large loading /service areas/extensive staff and lorry parking areas which are not always available with speculatively constructed units. These units tend to be quite safe in design and stick to what the majority of end users require (for example, institutionally acceptable).

“These new facilities are also located in prime/sub-prime areas, and where end users need to be next to particular suppliers or skill basis then D&B again is the only option.”

Companies opting for design and build include Poundland, which is seeking planning permission for a 300,000 sq ft distribution centre at the South Lancs Industrial Estate in Ashton-in-Makerfield, which will serve its network of stores in the North West.

And then there is XPO Logistics; the company has pre-let a 250,000 sq ft design and build distribution centre from Evander Properties at its 10-acre Grand Central, Trafford Park development in Manchester.

The warehouse will be comprised of 237,000 sq ft of warehouse space, plus 13,000 sq ft of office space. XPO will use the facility for distribution of Missguided, the online fashion brand.

Construction of the building, which will be developed to BREEAM “Very Good” certification, has already started and is due to complete by March 2016.

JLL, Bilfinger GVA and Savills acted for Evander while Legal &General, and Louch Shacklock acted for XPO.

There are a number of sites where design and build could be an option. These include Omega South, Logistics North and remaining plots on Kingsway.

Cook says: “There is not a lot land at Kingsway there is only room for another 300,000 sq ft and then that is it. At Omega South only about 1 m sq ft and Logistics North is already 50 per cent taken-up. Where is the next phase of land coming through?”

Dunston agrees: “All the good sites are being taken up. Land is tight.”

Taylor adds: “There is still demand for more sites in the North West and will continue to be so for some time but the problem is cracking sites on motorway junctions are few and far between at the moment.”

Kenny-Levick says: “New sites like Stoford’s Stonebridge Cross in Liverpool are being brought forward which can accommodate a single unit of 1 million sq ft but more land is needed. The time is now right for landowners with functionally obsolete stock to demolish/redevelop sites to both capitalise on increased market demand, and provide the modern stock those end users require.

There is a 200 acre site south of Warrington, but this has some way to go through the planning system. However, such is demand that the site has already secured a shortlist of potential developers.

Andrew Aherne of Aherne Property Consultants says: “It is difficult to know where the next site is going to come from.”

He cites one of the biggest, a 90-acre scheme known as Frontier Park near Blackburn that could accommodate up to 1 million sq ft in three of four units. The site, located close to Junction 6 of the M65 motorway is under offer. It was sold by Praxis through Bilfinger GVA with the purchaser represented by Aherne Property Consultants.

Stoford has also acquired a 24.4-acre site just off Speke Approach in Widnes, known as Ditton Park, which is also being brought forward.

Developers and landlords with sites are pushing forward strongly, none more so than Peel Logistics, which has secured planning for an 800,000 sq ft mega shed at Knowsley Industrial Park near Liverpool.

Peel Logistics was advised by Indigo Planning and AEW Architects, with AEW designing three illustrative layout options for the site.

Knowsley Industrial Park accommodates around 600 businesses over 900-acres of land. Occupiers could take a single unit of 800,000 sq ft, or there could be two or three units totalling 720,000 sq ft built on the plot.

The 37-acre Knowsley 800 site is the largest on the park and has been vacant since September 2012.

Matthew Fitton, director of development at Peel Logistics, said: “The outline planning consent gives Peel Logistics the ability to deliver warehousing and distribution facilities of up to 800,000 sq ft in one single unit. In addition, we will shortly be instructing a £1.2 million groundworks contract to bring the site forwards for development, which will essentially create an ‘oven-ready’ land opportunity, and allows us to offer the occupational market competitive timescales for the delivery of new design and build facilities. We recognise this is essential in securing occupiers, and have therefore fully committed to this strategy at Knowsley 800.”

Kenny-Levick notes: “Although new stock coming to the market will give occupiers more choice of quality product, they are going to have a shock when it comes to paying the rents to secure them.

“Gone are the days of large incentives and reduced rents. Headline rents are set to break the £6 per sq ft level for the first time in the North West on this type of stock.

 

Rumoured

It is this rise in rents that is considered the next most important story in the region and is after all the reason why speculative development is possible. Rob Taylor of Knight Frank says: “The last two speculatively developed warehouses in Trafford Park: Merlin 310 and the Fusion building both let at £4.75 per sq ft headline but a recent deal on the park is thought to have gone much higher. Expo Logistics is thought to have taken Evander’s 250,000 sq ft unit at a rumoured rent of 5.50 per sq ft.

“Quoting rents are generally in the high £5s low £6s ranging from everything from £5.95 and north of £6 at the airport. Rental growth is definitely here.”

Robert Dunston of Bilfinger GVA agrees: “We are on a site with Aviva and Graftongate at Harehills Distribution Park, Heywood. The 95,116 sq ft speculative unit will be ready in the second quarter of 2016 and we are quoting north of £6 per sq ft.

“However, “ he adds: “letting deals will be covenant driven as much as anything. Covenant drives everything now.”

Joint agents on the scheme, known as Link95, are WHR, Bilfinger GVA and Preston O’Herlihy. The £10 million scheme will feature 10 loading docks, two-level access doors, 90,522 sq ft of ground floor storage space and over 4,500 sq ft of high-specification first floor offices. The site will include parking for more than 90 cars.

It is located just two miles east of Junction 3 of the M66 motorway and within three miles of Junction 18 and 19 of the M60 orbital motorway.

Cook notes: “Rent levels are going some. If you look back 12 months ago, rents were at £5.50 per sq ft on average what we then saw was an increase in enquiries and an increase in build prices of 10 per cent so investors put rents up 10 per cent to the current average of £5.95 per sq ft but we have quoting rents exceeding £6 per sq ft.”

When it launched its 360,000 sq ft speculative unit, Exeter Group answered the question of quoting rents with the enigmatic: “It will begin with a 6 and end with a 5…

“The market is coming to realise we are not at £5 per sq ft anymore and a rent of over £6 per sq ft it will be market norm in 12 months time.”