Despite the dwindling supply of speculative buildings in Scotland, which has stabilised rents, it is still very much an occupier’s market. Although, the fact that landlords are not subject to the empty rates legislation currently crippling their English neighbours is a major advantage. “It means that landlords aren’t under the same pressure to do crazy deals,” says Bryce Stewart of Colliers CRE.
However, Iain Davidson of Colliers CRE says that in west Scotland shorter, flexible deals are now a feature of the market. “The majority of occupier demand continues to be for sub 20,000 sq ft properties, although there are signs of life in big sheds with several recent deals including Scotland’s largest ever pre-let,” he says, referring to the 504,000 sq ft taken by the Co-op at ProLogis M8, near Glasgow earlier this year.
Given the lack of speculative development, Davidson reckons there is likely to be a shortage of new-builds in west Scotland once conditions improve. He says prime headline rents remain stable despite the poor supply, but that landlords are being “increasingly aggressive” in their approach to secure tenants.
As a result, there are some attractive incentives being offered. On a new-build unit around 20,000 sq ft, a five-year lease will offer six to nine months rent-free, and a ten-year lease 12 to 15 months rent-free.
Colliers CRE is marketing a 60,000 sq ft building for DHL Supply Chain at Bellshill -a prime location east of Glasgow – at £5.25 per sq ft, for which Davidson says it can offer “extremely attractive” incentives.
Tenants are streaming into Pegasus Business Park – the former Rolls Royce factory at Hillington, Glasgow – with developer St Modwen securing some 56,000 sq ft of industrial lettings. Reid Furnishings has taken a further 5,000 sq ft in addition to the 52,000 sq ft it secured earlier this year, at £2 per sq ft. And metalwork manufacturer Charles Henshaw has taken 20,000 sq ft of refurbished space at a rent of £2 per sq ft.
MTM Transport has scooped up 31,000 sq ft on a three-year lease, also at a rent of £2 per sq ft, having won a national distribution contract from World of Sofas.
St Modwen has now refurbished some 400,000 sq ft of former factory space at Hillington, which comprises units from 16,000 sq ft to 130,000 sq ft. Also at the park, the developer has recently completed an 80,000 sq ft speculatively built development, known as Pegasus Court; 60 per cent of which has already been let or sold.
“These deals show there is still good appetite for well located, affordable and flexible industrial properties,” says Davidson, adding that there is a feeling of “cautious optimism” that market conditions will improve into 2010.
In east Scotland speculative development has all but dried up, bar contractor J Smart and Co’s recently completed 25,000 sq ft development at Bilsten Glen. Bryce Stewart of Colliers CRE reckons that with speculative development becoming so rare, design and builds will become a feature of the market.
Eurocentral in Lanarkshire has now disposed of all its speculative buildings; the latest being the 71,700 sq ft Artemis building, which Lightbody Group – a subsidiary of Finsbury Food Group – took on a five-year lease at £5.25 per sq ft.
In the former enterprise zone at Eurocentral there are some attractive deals to be had. Whereas previously landlords were offering a standard six-month to one-year rent-free period on a 20-year lease, now, Steve Turner of Muse Developments says that two-year rent-free periods are being offered on 15 to 20-year leases.
Scotland’s distribution landscape may be very different in the near future. The M74 – which runs from Tollcross on the edge of Glasgow, to the English border at Gretna – is being extended.
Steve McLachlan of BNP Paribas Real Estate reckons the extension, which will be completed in 2011, will have a significant impact on where companies choose to locate their hubs in the future.
Historically, distribution routes going from east to west Scotland have been limited to one route through Glasgow, creating a bottleneck. “The extension will get rid of the bottleneck and open up the area to the national motorway network,” says McLachlan. “This will make areas such as Hillington even more popular as they will have better access to the airport to the west of Glasgow, and will be tapped into the motorway network.”