Saturday 1st Oct 2016 - Logistics Manager

Time to look east

The market in East London is bucking the trends but what opportunities does it hold for occupiers? Liza Helps reports.

LM Front Cover

This article appears in the March 2016 issue of Logistics Manager

The East London warehouse market seems to be the exception that proves the rule. While other regions are suffering desperate shortages in availability and speculative warehousing is gathering apace, in East London the opposite seems to be true.

There are a number of buildings on the market and they seem to be ‘sticking’. There are half a dozen units around 100,000 sq ft plus that have just not found tenants. These include two units at Bericote and Blackrock’s Tower Thurrock scheme totalling 101,000 sq ft and 128,000 sq ft that have quoting rents of £8.50 per sq ft and £8.25 per sq ft respectively. Joint letting agents are CBRE and Altus Group.

Then there is Logicor’s Logic 233 in Dagenham totalling 232,965 sq ft. The facility boasts 12 m eaves, 50m yard, 20 dock and three level access doors as well as 43 HGV and 144 car parking spaces, which is being marketed by DTRE and Savills at £8.25 per sq ft.

There is CBRE Investors’ 115,691 sq ft “The Interchange” in Swanley being marketed by JLL, SH Williams and Altus Group; then there is Brookfield’s 110,771 sq ft Thurrock Gateway building totalling 110,771 sq ft with 10.5m eaves, 11 dock and two level access doors. It is on the market through Savills and Tudor Toon. Finally there is also M&G’s Thurrock 111 totalling 112,000 sq ft, which is being marketed by Altus Group and Lambert Smith Hampton.

Stephen Richmond of Altus Group says: “Units of 90-100,000 sq ft are a bit ‘sticky’ but that is not because the market is dead, there are good levels of enquiry for all unit sizes, rather that enquiries are taking a lot longer to process.”

Occupiers are cautious he adds with a number of them looking at alternative options. “They may have a requirement for more space in Essex and North Kent but they are also looking at sites in the Midlands as well for example.”

Be that as it may, says George Glennie of developer Goodman: “The market dynamics are finely balanced and if deals were to happen it would swing in a different direction.”

One factor, which as a developer, Glennie describes as positive: “With the overhang of space gone, developers would be in the right place to progress speculative development on a much more positive footing.”

For all that, there may be seemingly a lot of stock, but Alan Holland of SEGRO is convinced otherwise: the ‘market is structurally under supplied’. It is certainly something that developer SEGRO hopes, as it has struck a 10-year deal with the Greater London Authority to develop more than one million sq ft of industrial space in East London.

The five sites, known collectively as East Plus, total 86 acres in five sites across Newham, Barking & Dagenham and Havering on both sides of the A13 corridor linking central London and Tilbury.

SEGRO estimates that the sites can support some 1.4 million sq ft of new urban logistics and light industrial spaces. It expects to invest about £180 million over the coming years in the overall scheme and, once built and let the properties will be retained in the company’s investment portfolio. It will provide starter units from 5,000 sq ft through to big box sheds of 100,000 sq ft plus.

James Haestier of Colliers International notes: “A lot of developers are trying to acquire land. On the West side of the M25 motorway there are very high rents and they see East London as an untapped resource where there is potential for rental growth.”

Jonjo Lyles of BNP Paribas Real Estate says: “Rents have been creeping up of late.”

Dominic Whitfield of Savills agrees: “Rent levels have definitely moved £1 per sq ft and a 100,000 sq ft unit in Thurrock at £8.25 per sq ft is starting to look cheap.”

It is thought that Kier Property will look for rents of up to £10 per sq ft plus on its new Logistics City scheme in Thurrock. Although this is for much smaller units, from 36,222 – 58,019 sq ft, it is considered a step change.

Kier Property bought the 10–acre site on Motherwell Way, close to Junction 30/31 of the M25 in West Thurrock, from Hanson for £8 million. It will develop a low-density site aimed at smaller logistics occupiers.

The properties will be available on pre-let and freehold turn-key solutions with a minimum specification boasting 12m eaves height, 118 car parking paces, 15 dock and two surface level loading doors, as well as a 50KN/sqm floor loading.

Planning has been achieved and construction is due to commence shortly. The scheme comprises of four distribution warehouses in a range of sizes, with fully fitted office accommodation including air conditioning. These units will be available for occupation in February 2017. Letting agents are DTRE and Glenny.

Holland agrees that rents in East London are at a real discount to West London, where he says rents are hitting upwards of £16 per sq ft.

“Historically the east has trailed the west but whatever way you look at it East London will have rental growth – there is a 50 per cent discount at the moment west to east.”

Around Enfield, landlords and developers are beginning to say that anything less than £10 per sq ft going forwards is just cheap. Only recently, Yodel is believed to have secured a 15-year deal at a rent of £9.25 per sq ft for IDI Gazeley’s 97,952 sq ft speculative facility at Enfield Distribution Centre, which came to practical completion in October last year.

The building boasts 12.5m eaves, 10 dock door and eight level access doors as well as 23 HGV and 90 car parking spaces. The rent level is considered a good jump for the area.

Joint letting agents on the site were JLL, CBRE and Lambert Smith Hampton. Knight Frank advised Yodel.

SEGRO acquired a 70,000 sq ft vacant speculative facility in Enfield and within weeks it was under offer at a quoting rent of £9.75 per sq ft.

At Aberdeen Asset Management and Graftongate’s Enfield Distribution Park quoting rents are in the low £10s per sq ft.

The scheme, which can provide facilities from 20 – 300,000 sq ft, is located off the Mollison Avenue, close to Junction 25 of the M25 and not far from the M11, as well as having excellent access to central London. Letting agents are Glenny DTRE and JLL. It is thought that one unit is already under offer.

It is not surprising then that developers with land in Enfield are considering, and indeed, moving forward with speculative development.

Industrial developer Chancerygate is to start construction of an 80,000 sq ft speculative scheme after purchasing a 3.2-acre site in Enfield.

The project is located within Brimsdown Industrial Estate and is set to be completed early next year. Units ranging from 4,500 sq ft to 60,000 sq ft will be offered on a leasehold or freehold basis.

Last year saw the completion of another Chancerygate project in Enfield when the 92,000 sq ft Lumina Park scheme was completed with all 12 units sold.

Alastair King, development director at Chancerygate, says: “This location is one of North London’s principle industrial and logistics hubs.

“Following the success of our Lumina Park scheme last year, we are happy to speculatively develop in Enfield once again where we have a proven track record.”

Savills acted for Chancerygate in the site acquisition. Glenny acted for the vendor. Both agents have been instructed to market the scheme.

SEGRO is moving forward with its Navigation Park scheme on a 10–acre plot with units from 47,000 to 115,000 sq ft of Grade A warehouse and office space. The units which are due to complete soon will have fully fitted offices, up to 50m secure yards with CCTV, 12m clear eaves height, dock leveller and level access loading doors.

They will be built to a BREEAM rating of ‘Very Good’ and have an EPC rating: A. Letting agents on the scheme are CBRE, DTRE and Glenny.

It is not just rents that have been moving, lease terms are also getting tighter. Richmond notes: “Landlords are looking for 10 year terms or a break at ten years on most new space and in most cases they are getting longer.”

“Last year we let Unit 13 Thames Gateway Park in Dagenham, Essex, on a 15 year lease to Fresh Direct.”

The 66,498 sq ft unit was let at a rent of £8.25 per sq ft. Altus Group and Bilfinger GVA advised the Standard Life and Ravenbourne joint venture.

Phase three of the scheme is now almost let with only three of the nine units available. The success of the scheme has meant that the joint venture will go forward with speculative development on the fourth phase.

Ed Cole of JLL says: “Landlords are looking for 10 year’s plus on speculative development and developers certainly don’t want to see less.

“Indeed many are holding out for 15-year deals on pre-lets. Occupiers are realising that five-year deals are just not there anymore. It seems a 10-year lease is the balancing point.”

With deals going through, developers and landlords are moving forward with speculative development. One of the largest in the region is Goodman’s Angle 265 at London Medway Commercial Park, which was speculatively developed in conjunction with Anglesea Capital.

The 267,150 sq ft warehouse has just reached practical completion and is immediately available. It has 15 m eaves, a 50m-yard depth, 24 dock and seven level access doors, 84 HGV and 236 car parking spaces. Letting agents on the unit are DTRE, CBRE and Moriarty & Co.

The 115 acre London Medway Commercial Park site has consent for up to 2 million sq ft of warehouse space as well as a detailed consent for a single unit of 1.225 million sq ft. Letting agents are CBRE, Caxtons and Colliers.

The other speculative big shed recently constructed is DP World and Prologis’ 316,561 sq ft warehouse at DP World’s 10 million sq ft London Gateway Logistics Park, right next to its London Gateway container port, on the north side of the River Thames.

The single-sided, 15-metre-high unit has a 55-metre yard and space for potential expansion. It boasts 32 dock, 10 transloader and six level access doors. It has parking spaces for 75 HGVs and 234 cars. The building has been designed to achieve BREEAM 2011 ‘very good’ accreditation and the best Energy Performance Certificate (EPC) rating for its size.

It is reportedly being marketed at £8 per sq ft. Letting agents are JLL and Colliers.

There are several schemes being brought forward. SEGRO has its 20-acre The Crux site in Purfleet which could take a unit up to 450,000 sq ft. Holland says the site is being pump primed with infrastructure works underway. “The aim is to produce an ‘oven ready’ site where we can deliver a unit in a 35-week time frame.”

SEGRO is not looking to speculatively develop on the site at present but does not rule out speculative development should the conditions be right in the future. Joint letting agents at the Crux are JLL, Glenny and Savills.

On the strategic front one of the biggest sites to come forward this year will be Howbury Park, Bexley. Previously being toted by Prologis the 149-acre site is now under the control of developer Roxhill.

Charles Blake of Roxhill says: “Our aim is to push ahead with delivery and invest in infrastructure to create a deliverable scheme along the lines of Coventry Gateway. This is the first really big scheme for Roxhill in the South East.”

Roxhill is submitting a new planning application for the site to update and revise the permission granted in 2007. The new plan envisages up to 8 units totalling 2.1 million sq ft. Letting agents have yet to be appointed.

Roxhill is also pushing forward with its 550,000 sq ft Maidstone scheme just off Junction 8 of the M20 motorway.