Is there really a shortage of warehouse space for logistics? Liza Helps reports.
Although there is a general consensus of opinion that states there is a shortage of warehouse space in the UK, the amount of available space over 100,000 sq ft actually rose 11 per cent in 2015 according to research by property consultant Savills to 34 million sq ft across 200 schemes.
So why does new research from another property consultant, Lambert Smith Hampton, a bare four months later predict a dire shortfall of warehouse space for logistics by 2020?
The main reason is that much of the available space is actually not fit for purpose; nearly three quarters of it is Grade B or below in quality or else in the wrong location for modern requirements.
In addition, although there has been a rise in the amount of available space, the percentage increase is coming from a low base; as the start of 2015 had the lowest ever recorded supply figures – decreasing nearly 70 per cent from the record highs of 94 million sq ft in 2009.
Steve Williams of Lambert Smith Hampton says: “While we’ve seen new warehouses being developed over the past couple of years, the amount of new space being planned simply can’t keep pace with the demands of internet retailers and their distributors.
“Unless developers start building warehouses at a rate that we haven’t witnessed during the 20 years I’ve been working in the sector, or major occupiers like Amazon are prepared to wait 12 months for delivery by building it themselves, we could run out of logistics space before the end of the decade.”
“E-commerce in the UK is not just growing rapidly, but it’s also evolving as retailers attempt to satisfy consumer demand ever more quickly and efficiently. This is resulting in unprecedented demand for strategically located logistics warehouse space across many parts of the country.”
According to Cushman & Wakefield’s latest Property Times research e-tailing/e-commerce has become the most influential sector in the industrial warehouse market. “For the second year in a row, retail accounted for the highest percentage of take-up [in 2015] and at 38 per cent was the highest retail proportion since 2010.”
In 2014, the major supermarkets took a lot of space in response to the increase in on-line shopping, whereas in 2015 it was the non-food and dedicated on-line retailers that have been taking new space.
In 2015 alone Amazon took more than 2.9 million sq ft in 12 buildings and doesn’t seem to be slowing down as it readjusts its supply chain to provide its ‘same-day delivery’ service and expansion into food and grocery delivery.
In its latest deal, the on-line giant has taken a 1.05 million sq ft on a build-to-suit basis at Mount Parks’ Bardon scheme in Leicestershire. Letting agents on the scheme where are Avison Young and DTRE. CBRE advised Amazon.
As a rule of thumb, for every £1 billion spent online, retailers require 930,000 sq ft of warehouse space according to research by logistics property specialist Prologis, and with online spending in the UK forecast to grow by 44.9 per cent according to Verdict, in the coming five years to reach £62.7 billion by 2020 some 58 million sq ft of warehousing will be required to meet demand.
Tessa English of JLL says: “Requirements in the market, as of January 2016, stand at between 21 and 26 million sq ft with 51 per cent from retailers, 24 per cent from logistics companies and 3PLs, 15 per cent from manufacturers and the rest from wholesalers.”
Mark Webster of Cushman & Wakefield says that it is difficult to truly gauge demand as a lot goes on under the radar with companies wishing to remain anonymous for competitive reasons.
“We are building 4 million sq ft less than the Grade A take-up last year,” he says, “in simplistic terms the answer is no, there is not enough space to satisfy demand.”
In the first quarter of 2016 alone, the total take-up of UK warehouse space exceeded 6.99 million sq ft, up 16 per cent on the last quarter of 2015, and 24 per cent of the long-term average.
Research from Savills shows that take-up has been driven by a number of significant mega-shed deals. Savills recorded four deals of more than 500,000 sq ft in the first quarter of the year, in contrast to only eight of these large deals taking place throughout 2015.
Richard Sullivan of Savills, says: “There continues to be a number of unfulfilled requirements in the market and for this reason, we anticipate that take-up will remain strong as 2016 continues.”
A flurry of deals by retailers specifically to boost their internet offering include Ted Baker taking Angle 325, a 323,895 sq ft high specification warehouse located at Goodman and Anglesea Logistics Partnerships’ 165-acre Derby Commercial Park in the East Midlands.
The warehouse features a 55m-service yard and 15m clear internal height, 38 docks and four level access doors as well as parking for 102 HGVs. Letting agents at Derby Commercial Park are CBRE, DTRE and Moriarty & Co.
John Lewis took a lease on Goodman’s speculatively developed 304,000 sq ft unit at Grange Park in Northamptonshire, in a bid to expand its distribution network and fuel its continued online growth. In addition House of Fraser is looking to acquire land at Roxhill’s Peterborough Gateway scheme for a 620,000 sq ft warehouse and new to the market furniture retailer Wayfair.com has snapped up a second hand warehouse at Magna Park Lutterworth.
With demand steady there is a boost in terms of speculative development but says Paul Weston of Prologis: “Speculative development is relatively slow to get going.”
Prologis is on its second tranche of speculative development since 2013 with units totalling 1.2 million sq ft being developed in five distribution centres and across its first small-unit scheme in four prime UK logistics markets.
At the third phase of Prologis Apex Park in Daventry, Prologis is building two units of 215,262 sq ft and 85,262 sq ft, which will complete shortly. It has already let one of those units to Hellmann Logistics.
The larger unit will have 12.5m eaves, 20 dock and two level access doors, 30 HGV and 157 car parking spaces. The smaller unit will have a 10m eaves height none dock and two level access doors, 18 HGV and 66 car parking spaces.
Letting agents are Lambert Smith Hampton and Burbage Realty.
At Prologis Park Dunstable, Prologis will build a 358,000 sq ft facility, which will be ready for occupation in March 2016. The new distribution centre will be on the final plot of Prologis’ Boscombe Road site.
At its flagship scheme Prologis Park Ryton near Coventry, the developer is set to build a further two units of 141,500 sq ft and 328,000 sq ft; both buildings will complete in the spring of 2016.
Prologis will also build its first small-unit scheme in the UK at Prologis Dawley Road at Hayes in West London. Offering a total of 120,420 sq ft in six buildings ranging
in size from 2,870 sq ft to 52,540 sq ft, Prologis Dawley Road will complete in April 2016. Prologis Dawley Road
is three miles from Heathrow Airport, in a well-established industrial location that offers convenient access to the
M4 and M25.
“This new phase of speculative development builds on the success of the 1.5 million square foot programme we began in a measured way at the end of 2013,” says Weston. “With the vacancy rate for Class-A industrial and distribution buildings across UK markets at 2.1 per cent, it’s imperative we anticipate demand and ensure we have a range of modern, high-quality facilities in prime locations across the Midlands, London and the South East.”
The first phase of Prologis’ speculative development programme included six distribution centres, five of which were let while under construction or shortly after completion. The sixth building, a 316,000 sq ft joint venture with DP World London Gateway at the London Gateway Logistics Park, completed in November 2015.
In addition to those units already announced Prologis has started the speculative development of two units of 113,335 sq ft and 78,780 sq ft at Prologis Park West London, its 30-acre site next to Stockley Park in Hayes, Middlesex.
Volkerfitzpatrick has been appointed as the main contractor and construction work started in early January. Each distribution centre will include a rooftop solar installation that will generate 10 per cent of the building’s regulated energy. Both new facilities will be constructed to achieve a minimum BREEAM ‘very good’ rating and the best EPC rating possible for their size.
Weston notes: “We have interest across the board but until more leases are actually signed we will not embark on any more speculative development for the time being. We are taking a measured approach.”
This is a sentiment replicated across the market. Charles Crossland of Goodman says: “As we continue to see a shortage of supply of Grade A logistics and warehouse accommodation of all sizes, coupled with strong levels of demand in prime locations across the UK, we will continue to invest in a programme of speculative development. This development will be undertaken in our recently formed Partnership with CPPIB and APG, and will focus on prime real estate.
“So far this year, we have completed and brought to market close to 2 million sq ft of newly built product in core locations across our UK portfolio of which 900,000 sq ft was let on or before practical completion and we are experiencing good levels of interest in the remaining space.
“We will continue to focus on development in well located prime locations in a careful and considered way, presenting opportunities throughout our development portfolio to offer flexible, speculative stock in locations with strong demand and little to no supply.”
The same drivers are part of St Modwen’s development philosophy. Jonathan Green of St Modwen says: “Key things are location and a shortage of good quality stock. We are finding then that if you build it then occupiers will come.”
The company has just secured a tenant for its 52,000 sq ft speculative warehouse CP52 at its Centurion Park scheme in Tamworth, allowing it to seriously consider progressing on site with a further 153,000 sq ft warehouse.
Andrew Gulliford of SEGRO notes: “Everyone is talking about the increase in speculative development but when you look at it locationally and the size of units created – 100 to 350,000 sq ft – and indeed how quickly it is taken up: it is a nicely balanced market and we do not expect that to change.”
On the big shed front while developers are being cautious and considered regarding speculative development occupiers can still opt for build-to-suit. Webster says: “Any shortfall in availability will be easily picked up by build-to-suit; half of the Grade A take-up [in 2015] was B2S or pre-let.”
Developers have not been slow in coming forward with a number of significant schemes gaining planning permission in the first half of 2016 including Roxhill’s 6 million sq ft East Midlands Gateway, as well as Sterling Capitol and HCA’s 2.4 million sq ft scheme in Goole to name but a few.
The Goole scheme received planning approval earlier this year. The hub will be located within the Humber Enterprise Zone, with direct access to junction 36 of the M62 and the Port of Goole, and the potential for a dedicated rail link. 339,719.78 sq ft will be for general industrial purposes, and 1,622,928.59 sq ft will be used for storage and distribution.
The development will be made up of two parts: The first is Goole36, a total of 39 ha (96.4 acres) across a larger area of the overall site, promoted by the HCA for direct development. The second part is Capitol Park, 13 ha (32 acres) controlled by Sterling Capitol and offering design and build development opportunities, close to the existing Tesco Regional Distribution Centre, Drax biomass facility and the Guardian Glass factory.
“Goole36 and Capitol Park now represent a major opportunity in the East Riding area, offering significant potential for employment and distribution development on a strategic site close to the M62 and the ports at Goole, Grimsby, Immingham and Hull,” said Nick Fillingham, associate director at Indigo Planning. “Their location within the country¹s largest Enterprise Zone is a clear signal of the growth opportunities they represent and the creation of over 3,000 new jobs will provide a significant boost to the local economy.”
Further north, Citrus Durham is working on a 2 million sq ft industrial and logistics hub in County Durham which is being marketed by Naylors and Avison Young.
The scheme to be known as Integra 61, on a 200-acre site at J61 of the A1(M) south of Durham city, will be a mixed-use commercial scheme that will include up to 2 million sq ft of employment space comprising large industrial and distribution units, a 70-bedroom hotel, a residential care home, restaurants, a GP surgery, retail units and up to 270 new homes along its boundaries closest to Bowburn village.
Robert Rae of Avison Young said “We are aware of a number of sizeable requirements in the market right now and there are few, if any, other comparable schemes in the North East that can accommodate these, so we are very confident Integra 61 will appeal to major occupiers particularly given its location immediately alongside the A1(M).”
David Cullingford, development manager at Citrus said: “We have worked incredibly hard over the past two years alongside the officers of the Council and other stakeholders to produce a high quality master plan that will create a first class environment for businesses and residents alike.”
“Our aim is simple: to see Integra 61 become the premier industrial and logistics location in the North East, with the ability to satisfy the large-scale requirements of major national and multi-national companies.”
Keith Stewart, head of industrial agency at Naylors added: “The scheme has the capacity to accommodate individual units of up to 1 million sq ft, making it ideal for occupiers with large space requirements and addressing the region’s severe shortage of big sheds.”
Citrus aims to start infrastructure works in early 2017 with the first units available for occupation from Autumn 2017.
There are also a number of large schemes being announced that have yet to secure planning but are in the process including a rail freight interchange scheme in the West Midlands being promoted by Four Ashes that could provide upwards of four million sq ft just of Junction 12 of the M6 motorway, IDI Gazeley’s extension to Magna Park Lutterworth totalling five million sq ft, a further as well as dbsymmetry’s 2 million sq ft proposals for Magna Park Lutterworth to the south.
“Where buildings are being built,” says English, “there may not be enough and there could be pockets of under supply particularly in the South East.”
Gulliford says that is already the case especially for warehouse units that can be used for urban logistics. “I think we have got a market out of balance with phenomenal demand.”
This is only exacerbated by the fact that land for development is under huger pressure for alternative uses and while it is a particular concern in London Gulliford says that sites for urban logistics are going to be tricky to find in proximity to any city centre in general.
“For logistics companies securing the infrastructure for last mile delivery seems to be the problem child of the supply chain hierarchy.”
Yorkshire: First spec warehouse at iPort let
US manufacturer Fellowes has taken the 144,373 sq ft speculative warehouse at Verdion’s £500 million multi-modal iPort development in Doncaster.
Fellowes is a manufacturer and marketer of air purification machines, office business machines, record storage, office health and comfort solutions, office and mobile technology accessories. It will use IP2b, one of the new speculatively built units at iPort, as its new UK headquarters and EU shared service building.
IP2b comprises 123,215 sq ft of warehouse space and 21,158 sq ft of office and welfare accommodation. Fellowes is relocating from its existing building at nearby West Moor Park and is due to move into the new premises in November this year.
John Clements, European development director of Verdion, says: “Our confidence to commence the speculative development programme has been endorsed by this letting to such a highly regarded, international operator.
Verdion started the speculative development of the first two units, totalling 350,000 sq ft in August 2015 with completion due in May 2016.
iPort is a Strategic Rail Freight Interchange (SRFI) which will deliver over 6 million sq ft of Grade A logistics warehousing linked with a high specification rail freight intermodal container facility providing rail freight services with continental gauge clearance to all major UK ports and the Channel Tunnel. The scheme offers design and build warehouse/logistics units from 50,000 to 1.2 million sq ft.
Verdion is developing iPort on a 337 acre site in Rossington, Doncaster. The site is linked with Junction 3 of the M18 via the Great Yorkshire Way which opened in February 2016.
Gent Visick, CBRE and Cushman & Wakefield are letting agents for iPort.
Development: Heywood spec build complete
The construction of the latest 212,000 sq ft phase of speculative development at Heywood Distribution Park has been completed. This takes the total space at the logistics hub to over two million sq ft.
The new buildings at the site are of 145,000 sq ft and 67,000 sq ft – according to investors Harbert European Real Estate, the buildings are the ‘only newly constructed specialist distribution buildings available in the North West situated on a distribution park with 24 hour security and controlled access’.
Aldi, Eddie Stobart, DFS, Wincanton, Aramex, Krispy Crème, DPD and Argos all have facilities on the site.
Derbyshire: Car parts
Ferdinand Bilstein UK, which makes parts for cars and commercial vehicles, is to open a 224,966 sq ft distribution centre at Markham Vale, situated between Nottingham and Sheffield close to the M1.
Bilstein, which is based at Ennepetal near Dusseldorf, acquired Kent-based Automotive Distributors in 2011, and now wants to consolidate operations at Markham Vale, which will become the base for FBUK’s distribution network.
Markham Vale is a joint venture between Henry Boot Developments and Derbyshire County Council.
Bilstein’s new distribution facility will be located on a 14.5 acre plot at Markham Vale North and is the first building to be developed on this part of the 200 acre site.
Operations director Paul Dodgson said: “We made the decision to move to Markham Vale as the development offers excellent transport links to the main motorway network, which was our key requirement. We also required a bespoke and high quality building to fit with the company brand and ethos, and we are confident that Henry Boot Developments can deliver this.”
Construction is due to start on site this month with practical completion expected by the end of the year.