A good time to buy

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Headline rents might be holding up in the Midlands but this does not reflect massive rent-free incentives and short-term break clauses being agreed to get space let. The market is fairly quiet in terms of lettings or sales of distribution warehouses – and for that the blame lies squarely with the lack of available finance.

On that basis those with the cash should be king. but there is almost too much uncertainty and no one quite knows where the market is at so everyone seems to be holding fast.

Nevertheless, there are a number of occupiers trying to find space across the region – often to consolidate to save money through economies of scale.

For occupiers these are interesting times and it has been said there are some desperate landlords and owners out there. but like any good game of poker there are few clues to say who is holding the weakest hand. Where it is most difficult to ascertain prices is in land values.

Robert Tattrie of Trebor Developments says: “In 2007. key distribution land sites in the West Midlands reached unsustainable land values, in the order of £650,000 per acre, driven by a combination of limited availability and low yields for pre-let stock.

“The credit crunch and recession however has put an end to all that, indeed an end to any speculative warehouse/industrial development at all.

“As a result there has been no evidence of land sales completing during the last 12 months, and limited evidence of fund sales to identify yields.

“Some evidence of leases being agreed/rents being identified on new accommodation has been seen and while the headline rents look to be holding up, this does not reflect massive rent-free incentives and short-term break clauses being agreed to get space let.

“What can be projected approximately is where investment yields are likely to be, as some evidence of existing building stock sales has been seen. Yields have moved out by as much as two per cent or more while rents have moved significantly less.


“The combined effect of significantly different investment yields, harder access to interim bank funding and lower rents is that any developer now appraising a site purchase for industrial/distribution development will be identifying signifcantly lower land values to achieve viability. I would predict in the order of £250,000 per acre in the West Midlands, a level which was common in the early 2000s.”

Nigel Dolan of Gazeley takes a similar view. He says that although there is no hard evidence of the drop in land value, “in some instances 30 to 40 per cent will be conservative”.

Steve Rowan of Atisreal believes there is a lot of land available much more readily to occupiers Lhan in the recent past.

“If you run an appraisal there is a significant fall. I would easily suggest land values have fallen from an average of £500,000 an acre to £300,000 an acre but there are no transactions to back that up at the moment.”

Carl Durrant of King Sturge suggests the fall from the peak could be as much as 50 per cent as a result of a yield shin of two to three per cent, coupled with market sentiment added to lack of finance, all of which has a downward pressure on land values.

Rowan reiterates: “There is land available – the problem is finding someone to buy it.”

It has also been suggested that the search criteria for land by developers is again focused on the more traditional locations such as the Golden Triangle.

At the peak of the market the more secondary locations such as Gazeley’s Worksop site, which was sold to Axa, were still very attractive. However, the thought now is that if you had the same site would you even be able to sell it?

Not surprisingly there is little or no new speculative development being pushed forward that has not already got funding or been committed.

Indeed, development at ProLogis’s 54-acre scheme at Ryton in Coventry has come to a Sliding halt with Kuehne + Nagel pulling out of DCI – a 500,000 sq ft unit there.

The developer is now seeking design & build options on the site, which could accommodate up to 1.25 million sq ft of space. Letting agents are Gerald Eve, North Rae Sanders and King Sturge.

“Ordinarily,” says Mike Price of Knight Frank, “a development such as this would have been brought forward on a speculative basis.”

Gazeley is one of the developers still bringing forward speculative space, although Dolan adds that this is only on schemes where the developer already has a commitment.

At present these include developments such as eco-warehouse Chatterley Valley, which is due for completion this month.

Dolan says the operational cost savings on the building are looking to scale £250,000 a year. It is on the market through M3, Lambert Smith Hampton and Burbage Realty at a rent of £5.95 per sq ft.

The developer also has its 700,000 sq ft Flair building at G Park Rugeley. The cross-dock warehouse is set on a 40-acre site and boasts a clear internal height of J 4.3m to underside of haunch, a floor loading of 50kn/sq m.

It has 80 loading docks, eight level access doors and 260 HGV spaces. Letting agents are M3 and Burbage Realty.

As well as these few schemes coming forward there is a welter of existing buildings to choose from across the Midlands.

Agents, developers and landlord alike seem keen to secure tenants but they are not willing to show their hands openly. For occupiers it will be a case of suck it and see to test the measure of desperation. One thing is clear – there are deals to be done.

Price says: “Rent-frees are in excess of two years, preference for incentives to move out rather than rents to come down.

“It’s all to do with value – if an occupier takes a I5-year lease and gets two years rent free all that means is that in two years time the landlord has still got the ability for 13 years of income stream that will rise, and an asset that will be worth considerably more. Keeping the headline rcnt high allows the landlord to maximise that value.”

For many landlords there is just too much book value to right down so they have no option but to keep headline rents high.

Rowan adds: “Everyone is trying to maintain headline rent level but there is more in terms of incentive packages than would have been found 12-18 months ago.

The amount of incentives you can get has increased but that possibly won’t be a straight rent-free period. There may be an element of stepped rent, so at least the building owner is getting some income stream or even a capital contribution, as part of an overall package and occupiers can lake it however they want, but it is unlikely to get more than one incentive. “The softness of a deal will vary on the landlord, It makes sense to get building occupied rather than hold out for 20-year leases.”

There are a variety of buildings on the market where landlords will be flexible for the right occupier. These include The Duke on Wellington Road in Burton-on-Trent, where Standard life has shown considerable confidence in the market.


The 300,000 sq ft speculative warehouse, built in conjunction with Anson Properties, boasts a 12m eaves height, 24 dock and four level access doors, a SOm-deep yard and 15,000 sq ft of two-storey offices.

It is being marketed by M3 and Knight Frank, which are quoting £5.25 per sq ft.

Further north, near Chesterfield is The Core, a 167,000 sq ft regional distribution centre just completed by Langham Park Developments.

It has a 12m eaves height and 15 dock levellers plus two level access doors. Floor loading is 50 kn/sqm and there is a two story offlce and welfare facility. The Core is situated at J29 of the Ml. Letting agents are the M3 Agency, Lambert Smith Hampton and Fisher Hargreaves Proctor.

There is also Goodman’s The Citadel at Junction 10 of the M6 motorway totalling 321,000 sq ft.

It has 12m eaves, two 50m yards as well as 28 dock and four level access doors and a 50kn/sq m floor loading.

Letting agents are Knight Frank and Jones Lang Lasalle quoting £5.25 per sq It and olTering to sell for £80 per sq ft.

There is ProLogis’s ProLogis Park Stoke for those with more unusual requirements.

DC3 totals 380,000 sq ft with 12m eaves and is situated next door to a large development plot which could accommodate a further 150,000 sq ft.

Letting agents are GVA Grimley, North Rae Sanders and Burbage Realty.

New to the market is lceCube, a former Unilever Birds Eye distribution facility at Hams Hall owned by Goldman Sachs.

The 197,623 sq ft ftozen distribution unit can freeze down to minus 27 degrees and has a blast freezer facility. It can accommodate 42,000 pallets and is fully automated.

Knight Frank and Cushman & Wakefield say they are open for negotiation to the right occupier.

Mark Fitzpatrick of GVA Grimley says: “There are a number of occupiers that are currently trying to find space across the whole of the Midlands many are looking to consolidate to save money through economies of scale, for example the likes of Eddie Stobart, DHL and Wincanton, if they can make it acceptable to their customers.”

Carl Durrant of King Sturge says: “We are seeing occupiers looking very carefully at their business operation and looking to consolidate and rationalise, especially if they are in a number of buildings.

“They are using this as a time to move into newer, larger, more modern buildings.

“For example Black Country-based Pallet-Track, which was operating from a number of older 1970s premises consolidated to a central building of 270,000 sq ft known as Titan 10 just three miles off Junction 10 of the M6 motorway.

“It took the Threadneedle-owned building on a ten-year lease with five-year break at a rent of £4.85 per sq ft.”

The company plans to invest a further substantial six figure sum in Titan 10 to configure it for its overnight freight handling operations, investing heavily in IT systems which allow it to keep track of the pallets and ensure rapid delivery to customers.

The new distribution hub will allow Pallet-Track to increase its operation from handling 4,500 to more than 9,000 pallets per night. All Pallet-Track’s 70 workers will transfer from its existing hub in Wednesbury to Titan 10 in Bilston, and in time, the company expects that this will lead to some further new jobs being created.

Cushman & Wakefield advised Paller-Track. King Sturge and Colliers CRE represented landlords Threadneedle Investment Managers and Zurich Assurance.

Another example was the letting of Opus Developments’ 105,000 sq ft Opus9 unit at Junction 9 of the M6 motorway to local company BTC Active Wear, which had been accommodated in several older-style Iactorles,

The company secured the unit on a ten-year lease with a five-year break at a rent of £5.50 per sq ft. There were other incentives for both transactions.

The stark reality of the economic conditions mean that landlords, already overburdened by the government’s insistence on charging full rates for empty buildings, are willing to be flexible at whatever stage of a tenancy. And nowhere was this more evident than at ProLogis Kingston in Peterborough where furniture company Willis & Gambier looked to be going under less than a year after agreeing to take a 545,000 sq ft unit on the scheme.

The company, rescued by Chinese firm Samson Holdings, needed to downsize to survive. In an agreement with ProLogis it moved into a smaller 187,500 sq ft unit on the same site. In so doing the landlord secured an income stream and the company is able to continue to trade.








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