The recent deals have seen Howard Tenens agree to lease Gazeley’s 232,965 sq ft uber-eco Voltaic warehouse in Dagenham on a ten-year lease at a rent in the region of £7 per sq ft. The third party logistics provider will serve its contract with Coca-Cola from the facility.
The Voltaic building had been on the market for quite some time and was in fact almost let three years ago. Unfortunately the deal never completed and having been effectively off the market for a few months missed out on other letting opportunities just prior to the credit crunch hitting the economy.
In another deal, AMB Property Corporation’s last remaining warehouse on its East London Distribution Park scheme was let to Wolseley on a 12-year lease at a rent of £7 per sq ft. The 141,924 sq ft warehouse has a 12m eaves height, as well as nine dock and five level access doors with a floor loading of 50kN/sq m, as well as a yard depth of 49m. The self-contained unit also has 14,359 sq ft of high specification comfort cooled offices. Joint agents Savills, M3 and Jones Lang LaSalle were quoting £7.75 per sq ft last year.
Although not let quite yet, Henderson’s Magnum 25 at Waltham Cross is due to sign any day with salad grower and packager Stubbins. The 177,900 sq ft shed will be used as a new salad packing facility. It sits on an eight-acre site, and has an eaves height of 12m. There are 14 dock and three level access doors. It has a yard depth of 53.5m with parking for 143 cars. It also has two-storey offices totalling 9,760 sq ft. Letting agents are King Sturge, CB Richard Ellis and Knight Frank.
Of the remaining buildings the 160,000 sq ft warehouse on Sandpit Road is rumoured to be under offer leaving 12 Point Bow – the only new build warehouse in the region. The 142,000 sq ft warehouse facility is built on the site of the former Iron Mountain building in East London.
It is located on the established ProLogis Park in Bromley-by-Bow, and includes approximately 16,000 sq ft of comfort-cooled office accommodation over two floors. It also benefits from 12.5m eaves height, 12 docks and four ground doors, 50kN/sq m floor loading and 1,000 KVA power transformer.
Jones Lang LaSalle is marketing the building on behalf of Iron Mountain and is willing to let on the basis of assignment or sublet. Short-term/flexible leases may also be considered.
John Allan of Dowley Turner says: “Generally supply of properties has been eroded in keeping with everywhere else [in the country]. There has been little or no development in the last two years to replace it. Perhaps we are moving from a period which may have been an occupiers market to one where perhaps the supply of decent stock dwindles with lease terms becoming more robust and softer deals dry up.” Basically there will be a power shift from occupiers to landlords.
A report from Jones Lang LaSalle shows that take up of industrial and distribution space in the UK, in units of over 100,000 sq ft, at 4.2 million sq ft in the first quarter of the year was up 40 per cent on the previous three months and 70 per cent higher than in the same period of 2009.
Richard Evans of Jones Lang LaSalle says: “During the first three months the majority of the leasing activity took place in existing vacant stock built over the last two to three years, which has reduced vacancy levels in most markets.”
Other available properties are all second-hand and include the former Viking Direct distribution warehouse at Isis Reach in Belvedere, Kent. Built in 2001 the cross dock warehouse extends to 320,825 sq ft and has 14 dock and 7 ground level doors with covered van docks with 40 bays. It has a 2,400kva incoming power supply and boasts 13.3m eaves. The rent is £6.46 per sq ft and the lease has 16 years remaining. Letting agent is Cronin & Co.
In addition, there is Sainsbury’s 671,636 sq ft Bridgeside distribution facility at ProLogis and Dartford Council’s 264-acre mixed-use site The Bridge. Cushman & Wakefield is the letting agent. The building can be let as a whole or as two separate facilities of 570,562 sq ft and 101,474 sq ft. It was originally let at a rent believed to be in the region of £7.50 per sq ft. The site has direct access to the M25 at Junction 1A, providing excellent access to the UK motorway network.
With so little immediately available property occupiers really have very little choice but to opt for D&B if they wish to be in the area and even then it will be a matter of securing a site as many of those to the east along the A13 corridor are being snapped up.
Mark Coxon of Caxtons says: “There are not that many large sites available and those that are, are being taken up for higher land uses.” Indeed Caxtons has recently sold an 11-acre site previously owned by Arjo Wiggins and half of it has gone for residential. In a larger deal, a 33-acre former GlaxoSmithKline pharmaceutical site in Dartford was sold for £15 million to Delancey for residential development.
Knight agrees: “The sheer weight of demand for regeneration and government backed projects such as the Olympics means that a lot of land has been lost to higher value land uses.”
John Allan of Dowley Turner Real estate warns: “The larger scale distribution market [is]entering into a period of D&B development. It is the main option in the absence of quality stock and no-one knows how long it will go on for. The thing occupiers need to appreciate is that D&B [lease terms]will not be quite as good as those on existing buildings and occupiers will have to make longer term commitments to make it work. D&B will not work on the back of a five-year lease.
“Those 3PLs that can only take a short-term lease will have to be more flexible about the type and age of property they look for. Up until now the market has been heavily weighted in favour of the occupier and it has hurt [landlords and developers].”
Dominic Whitfield of Savills adds: “Rents and lease terms will be more expensive. Developers will not want to give so much away. Occupiers need to realise that the developer has to borrow and cover interest payments as well as take the risk if the property is not let.”
Chip Mitton of Altus Edwin Hill agrees: “New deals have had to be done at more standard terms with institutional leases, modest incentives and sensible rents. A 15-year lease with break clause penalties and/or a reduction in incentives is a must otherwise it just does not add up.”
With such a shortage in available properties one would think that developers would come back to speculatively build but the problem is, says Kevin Storey of Cushman & Wakefield: “Developers just don’t have the money.
“D&B occupiers are not going to get the same kind of deals as those taking an existing unit and those going for it now will probably have missed the market. Occupiers are going to be looking at costs around 24 per cent more expensive [than if they secured an existing building].
“The pendulum will swing back. Occupiers have had one of their best periods and over the next year to 18 months, all things being equal, it will be a much more difficult time to take new premises. After that it might start to get a little easier but of course as soon as you get a building up speculatively you factor in a letting period and it starts eating in to the profit. As soon as you get that pressure then occupiers will get better deals but that will not be for the next couple of years until the development pipeline restarts. There’s going to be a period within which there is not the same pressure on landlords and developers to do deals.”
John Porter of Frankis Porter adds: “There is nothing speculative in terms of any size being built and there are few land deals going through. Land that is available is held by the likes of the National Grid or the London Development Agency neither of whom need to sell and so occupiers should not expect much of a discount of the peak prices of between £900,000 and £1m an acre.”
Although not under much pressure to sell land there is pressure to create jobs. And recently the LDA has back tracked on its pledge not to allow distribution warehousing on any of its landholdings. It has just reached an agreement with Tesco to develop a 500,000 sq ft of regional distribution facilities on a 35.2-acre plot at Beam Reach 5 in Rainham.
The LDA has agreed options for Tesco to purchase additional land at the 84-acre Beam Reach 5 site to enable further expansion. CB Richard Ellis, Kemsley, and North Rae Sanders advised the LDA; Lambert Smith Hampton advised Tesco. The LDA will now look at applications on a project by project basis.
Looking at sites that are available for build to suit, even those are being taken up quickly. It is rumoured that ProLogis has secured potential occupiers for the whole of its ProLogis Park at Littlebrook. However it still has its scheme at Howbury, one of two major sites to the east of the M25. The rail freight interchange scheme in Erith just off Junction 1a of the M25. The 156-acre distribution park could accommodate up to 2.1 million sq ft of rail-connected space in four units from 145,000 sq ft to 1.1 million sq ft. The £80m project is expected to take hundreds of lorries off the roads and according to ProLogis will save 35,000 tonnes of carbon emissions a year and create up to 2,500 new jobs. Letting agents are Savills and BNP Paribas Real Estate.
Then there is DP World’s London Gateway scheme where buildings of up to 1 million sq ft can be accommodated. In total, London Gateway incorporates over 1,800 acres, this includes the port and park and areas for environmental mitigation.
Other schemes for D&B include Bericote Properties’ Base25 in Erith, previously known as Bronze Age Park. There is planning permission for three buildings of 423,900 sq ft, 83,000 sq ft and 133,700 sq ft with eaves heights up to 17m. Letting agents are Colliers CRE, Altus Edwin Hill and CB Richard Ellis. Bericote purchased the 38 acres at Bronze Age Park for £800,000 per acre from Apollo/Astral in 2007.
To the north at Enfield, Gazeley has its G.Park Enfield site, which has planning for a 366,960 sq ft warehouse with 15m eaves, 5.5 per cent office space, as well as 34 dock and two level access doors. As expected from Gazeley any such development would come with a host of eco-initiatives including 15 per cent roof lights.