Saturday 1st Oct 2016 - Logistics Manager

West Midlands: When one door shuts…

A chronic shortage of space and land is spurring on developers to build speculatively, reports Liza Helps.

First published in Logistics Manager, April 2015.

First published in Logistics Manager, April 2015.

The biggest blow to the logistics sector in the West Midlands has been the refusal by Eric Pickles, the communities and local government secretary, to allow the development of Roxhill’s 4.5 million sq ft Coventry Gateway scheme adjacent to Coventry Airport on green field land.

Despite the £250 million business park having been approved by Warwickshire Council and Coventry Council and supported by Coventry and Warwickshire local enterprise partnership (LEP) the green field development was considered too risky to be given the go ahead, in this an election year.

The scheme was made up of two separate plots. The southern 200 acres capable of providing 3.6 million sq ft of large B2/B8 warehousing, while the northern 60 acre plot fronting the A45 had the potential for a variety of B1(a) (b) and (c) uses together with a hotel and other ancillary retail uses, totalling 900,000 sq ft.

It would have been the largest strategic development in the West Midlands and its refusal leaves the region with very little land with planning consent for employment uses.

David Keir of Roxhill notes: “Coventry and Warwickshire are rapidly running out of sites to attract investment. The region is very short of locations that will not only attract inward investment but also allow companies to expand and remain in the area.”

Robert Rae of North Rae Sanders agrees and adds: “To facilitate demand from the likes of Jaguar Land Rover, which took more than 700,000 sq ft last year alone, more land does need to be urgently released. People only have to look at Prologis Park Ryton, which is full almost full after only three years!”

At a recent Birmingham Real Estate Network meeting Alex Carr of Lambert Smith Hampton puts it more starkly: “The existing supply has been completely exhausted and we are going to face a lot of problems. Occupiers have taken the opportunity to grab the last few available properties with the result that now there is very little left on the market. The region is losing out to the East Midlands, which has a good supply of potential sites.”

Robin Woodbridge of developer Prologis notes: “There is a lack of land supply. and there are very few sites with planning. Trying to find land that you can buy and bring forward is tricky. Invariably the sites are more complicated with more complicated planning. There is land in the West Midlands but on the West M6 and M42 corridors, it is particularly tight.”

Perhaps the region has just been too successful of late. David Binks of Cushman & Wakefield says: “2014 saw a huge increase in demand for industrial properties across the board, with the volume of enquiries increasing by 5.5 per cent compared to 2013 and the overall space required increasing by 10 per cent.

“The improvement in total take-up, volume of enquiries and overall space required witnessed in 2014 is a clear indication that confidence continues to grow in the industrial sector among occupiers.

“The improving economic conditions continue to encourage business growth leading to increased demand to accommodate both expansion and relocation requirements.”

As Jonathan Robinson of DTZ says: “This issue we have is that take up is increasing, supply is reducing, and there isn’t enough employment land in the region to cater for that for pent up demand.”

Jon Ryan Gill of Knight Frank agrees: “Scarcity of stock and prime consented development sites is now a major concern and competition for land is growing with developers eating into their existing land banks.”

According to Lambert Smith Hampton’ latest Industrial and Logistics market report take up in the West Midlands in the past year increased 33 per cent over the previous year to total 19 million sq ft and as a result availability is at an all time low.

 

Six months supply

Ryan Gill notes: “There is around 6.21 million sq ft of good quality space in units over 50,000 sq ft currently available equating to just six months supply based on take-up trends over the past five years, and of that, approximately 2.1 million sq ft is under offer.”

As a result, Richard Meering of CBRE says: “The past year has seen some of the last remaining space from the 2009 supply peak finally be taken for occupation contributing to a record low for availability by the end of the year.”

Deal included on-line bicycle and bike gear specialist retailer Wiggle taking Goodman’s 321,000 sq ft Citadel facility at Junction 10 of the M6 motorway. The building has 12m eaves, two 50m yards, 28 dock and four level access doors, and a 50kn/ sqm floor loading. Letting agents were Bulleys, Knight Frank and JLL.

In addition Norbert Dentressangle took Blackstone’s 184,910 sq ft Radial Point warehouse in Stoke-on-Trent on a five year lease at £4.75 per sq ft.

The ex M&S unit is fully fitted out unit with 12m eaves, 17 dock and three level access doors and fully fitted office accommodation. Joint letting agents were Dowley Turner Real Estate, Moriarty & Co and CBRE.

Binks says that the increase in demand had exacerbated the long-standing problem in the Midlands of the lack of availability of Grade ‘A’ space. As a result, occupiers found that in 2014 there was less choice available, with some forced between opting to wait for existing buildings or speculative developments or entering the design and build market.

More than a half of the transactions in the West Midlands for buildings over 100,000 sq ft were through build-to-suit in 2014. One of the largest saw Euro Car Parts secure a 778,000 sq ft build-to-suit facility at IM Properties Birch Coppice scheme near Tamworth.

The facility, one of the largest in the West Midlands, will stock over 150,000 different product lines and dispatch over 200,000 items each night to the branch network.

Euro Car Parts currently occupies over 600,000 sq ft of warehousing on the same estate, which will be retained and transformed into a specialist facility for collision, coatings and green parts.

It has taken a 20-year lease on the building, which is due for practical completion in January 2016. It will include 47,500 sq ft of offices alongside 4 level access doors and 64 dock doors.

Martin Gray, CEO of Euro Car Parts, notes: “Due to the scale of the unit that we were looking for, there were very few opportunities in the market that met our requirements.”

For those unable to wait for buildings to be constructed, and with grade ‘B’ space being limited as well, the only option left is to look at grade ‘C’ space.

Binks said in 2014 many firms opted to go down this route as a temporary solution, particularly those with fixed-term contracts to fulfil in sectors such as automotive and distribution.

This helped boost take-up of Grade ‘C’ industrial space during the year, with 16 transactions of buildings of more than 100,000 sq ft totalling 3.65m sq ft being completed, compared to 2013 where three transactions were completed totalling 830,000 sq ft. Take-up of similar sized grade ‘B’ space was less, at 2.14m sq ft compared to 2013 which was 2.62m sq ft, although this reduction is a function of the limited supply of facilities available of this quality says Binks

“We believe the increase in grade ‘C’ take-up is reflective of occupiers requiring immediate occupation of buildings on three to five year term certain deals, rather than better quality buildings where longer lease terms would be required.

“This is especially the case for third party logistics companies, where contract lengths tend to be three and five years, and more lease flexibility is important.

“The shift in demand for grade ‘C’ space in 2014 over grade ‘B’ is reflective of a greater quantity of take-up in of the latter in 2013, which significantly reduced stock levels.”

Neovia Logistics has just secured a 224,000 sq ft building known as The Triangle near Coventry on a three-year lease at £5 per sq ft so that it can serve a contract with Jaguar Land Rover.

The 20-year old Triangle warehouse complex sits on a 15.5-acre site. It has 7.3m eaves with 14 level access doors, a 60m deep yard and 438 parking spaces. It is fully heated, lit and sprinklered.

So how is the property industry responding? According to Ranjit Gill of Savills: “The Midlands is responding to the chronic shortage of Grade A supply by being the most active region for speculative development in the country.

“The region accounts for 50 per cent of the total sq ft of speculative development in the UK; around 2.15 million sq ft is currently being developed and there is more in the pipeline.”

Developer Prologis has started building a 127,500 sq ft speculative building on the final plot at Prologis Park Midpoint near Minworth.

Known as DC1, the building, which has been designed to achieve a minimum BREEAM ‘very good’ accreditation and the best possible EPC rating for its size, will complete this summer.

 

Speculative development

The warehouse will boast 12.5m eaves height, 12 dock and two level access doors and it will have a 50Kn/sqm floor loading. There are two-storey offices and the facility has a 50m-yard depth with 94 car and 21 lorry parking spaces.

Joint letting agents are Savills, JLL and Gerald Eve who are quoting a rent of £6.50 per sq ft.

In addition the developer is also looking at speculatively developing two further units of 108,000 sq ft and 140,000 sq ft at its flagship west Midlands scheme Prologis Park Ryton. Woodbridge says detailed plans are being brought through the planning system.

After successfully securing a 236,806 sq ft pre-let to fashion retailer H&M, SEGRO and Roxhill are developing a 235,000 q ft speculative facility at their 125-acre Rugby Gateway scheme just off Junction 1 of the M6 motorway.

Gareth Osborn of SEGRO says: “Having decided to speculatively develop the building we have found we have got a good deal of interest for the space. The fact that we can deliver it in August 2015 is definitely helping garner interest, in not just the spec facility, but the site as a whole.

“The 3PLs and other operators are seeing that the site is available and that they can get in this summer. It is creating strong interest and we have quite a few parties looking seriously. It is something we are seeing across market as a whole where there is speculative development you get the same result; people are coming out of the wood work with requirements.”

Rugby Gateway can accommodate up to 1.8 million sq ft in units ranging from 200,000 sq ft to 925,000 sq ft. Infrastructure works are complete and plots prepared for immediate development. There is detailed consent for an 800,000 sq ft plus unit as well. Letting agents are Cushman & Wakefield and CBRE.

Cordea Savills and Canmoor are also pushing forward with speculative development at a 7-acre site in Hams Hall. Known as Silver Bullet, the 142,758 sq ft building is due for practical completion in April. It has 11.5 m eaves as well as 10 dock and two level access doors. It boats a 50m yard with 90 car and 34 HGV parking spaces. Letting agents are Savills and JLL.

Canmoor has a site opposite called Black Velvet, which could also be speculatively developed, though at present is being marketed as build-to-suit. The plot could accommodate a unit up to 172,215 sq ft with a 67m yard and two storey offices.

Steve Prosser, Midlands regional director at St Modwen, says: “We are fast progressing with five new schemes at strategic locations across the region to help respond to the increasing demand for quality warehousing.”

These include detailed plans for two speculative buildings to extend Centurion Park in Tamworth.

Located next to junction 10 of the M42 motorway, the 20-acre scheme was first granted outline permission last year and in response to demand for space St Modwen has lodged new plans for two warehouses of 52,500 sq ft and 157,000 sq ft to be built speculatively

Jonathan Green, development surveyor at St Modwen, says: “The lack of stock, combined with a strengthening market has enabled us to accelerate plans for our extension of Centurion Park.”

There is already strong interest in the units and the developer hopes to be able to deliver the new facilities in the summer.

Not to be out done Goodman is also speculatively developing at its Lyons Park scheme in Coventry. The developer has formed a partnership with LaSalle Investment Management and the Homes and Communities Agency to speculatively develop five industrial units totalling 214,000 sq ft – which will range in size from 32,000 to 50,000 sq ft. This project, the first speculative development at Lyons Park, is the first speculative mid-size unit scheme of this scale in the region since 2008.

Nigel Dolan of Goodman says: “We are developing mid-sized units because we identified a massive lack of supply of good quality new mid sized units for local and regional occupiers who want to expand into bigger and better premises. We are already on-site with steel frames going up and there is some encouraging interest to date.”

Letting agents on the scheme are Savills and CBRE.

“What we are finding,” says Ryan-Gill, “is that speculative buildings are being let during the construction period or shortly after so investors are in with a short turn around of say only nine to 12 months and even if they had to wait a further six months it is a very minimal void given that stock is going so rapidly – it’s a very compelling argument to invest especially as they can command 10 year plus leases and top rents.”