The supply of large distribution warehouses has fallen, so where are the opportunities?
Jones Lang LaSalle’s recent Property Predictions report notes that there is a massive pent up demand for logistics warehouses in the UK. According to Jones Lang LaSalle’s Tim Johnson:
“We estimate that there is some 24 million sq ft of stated enquiries for logistics units over 100,000 sq ft in the Southern and Midlands markets alone.”
But there is a problem; there are not enough modern Grade A sheds. CBRE’s Winter UK Logistics MarketView makes it painfully clear. “The severe shortage of large grade A warehousing means that prime availability in key regions is now at all-time low.”
Paul Farrow of CBRE continues: “Significantly, there are currently no occupier-ready units over 500,000 sq ft in the strategic South East or Midlands ‘Golden Triangle’ regions of the UK.”
How has it come to this? Len Rosso of Colliers International says: “We are in a situation whereby there were a lot of big sheds available and demand was consistent for three or four years but then supply simply stopped.” In fact he goes on to say that the combination of the economic crises and the introduction of Empty Rates killed off speculative development.
“If a developer wanted to build a big shed of say 500,000 sq ft speculatively in an area such as the Midlands, they would be faced with a rates bill in the region of £1 million a year and bearing in mind it can take a couple of years to let one of these buildings it is no wonder they don’t want to take the risk, the costs are just too high.”
It’s not just the South East and Midlands area that are affected. According to DTZ, the South West generally has the lowest availability ratio of Grade-A buildings in the UK. In fact so little space is available that the two latest deals in the region have both been build-to-suit. It’s a similar picture on the South Coast. Adrian Whitfield of Lambert Smith Hampton says: “With a general lack of availability, we see larger occupiers having little choice but to consider Design & Build opportunities and 2012 could be the year that pre-lets are also agreed. In fact, already this year GeoPost has signed a 36,580 sq ft pre-let agreement at Hamilton Business Park.”
In addition, cut-price retailer Lidl is looking to D&B a 450,000 sq ft distribution centre at Nursling near Southampton. It has submitted plans with Barker Mills Estate to Test Valley and Southampton Council.
Of the big sheds that are available there are only two modern units over 500,000 sq ft in the whole country; Great Line Developments’ Crackerjack building in Corby and ProLogis’ Crossflow 550 warehouse in Bristol.
Crackerjack totalling 525,000 sq ft and is cross docked. It has a 15m eaves height as well as 50 dock and four level access doors with a capacity to store 77,000 pallets. The building has two service yards and parking for 98 HGVs and 336 cars. Letting agents are CBRE and GVA.
While ProLogis’ Crossflow550 cross dock warehouse in Cabot Park totals 549,626 sq ft. It was built in 2008 as the largest speculatively, developed distribution unit ever constructed in the South West.
It boasts 12 m eaves, 50 dock and eight level access doors, two 50m deep yards, 172 HGV/trailer space as car parking for 403. It stands on a secure site of 27.64 acres with gatehouses. It is being marketed by Knight Frank and Savills.
There are developers and landlords who can deliver mega sheds but these would involve modern units being joined together. Evander Properties which oversees Sherburn Distribution Park in Yorkshire has secured planning to do just that with Sherburn 130 and Sherburn 330. The two units would provide a single large shed of 550,336 sq ft which would boast 15m eaves, 57 dock and four level access doors, with a 65kn/sq m floor loading. The facility also benefits from a 14MVA power supply and has the potential to be cross docked.
Sherburn Distribution Park is located to the east of Leeds on the A1 corridor situated within five minutes’ drive time from Junction 42 of the A1(M) and 10 minutes’ drive time from J32a of the M62 Motorway. It is being marketed by DTZ, CBRE and Moriarty & Co.
Mike Baugh of DTZ says: “Evander decided to join 330 and 190 together to do 550 because of lack of available stock in that size range in the UK. Now that planning has been secured we can deliver a big shed over 500,000 sq ft within three months.”
CBRE Investors’ 30 acre SIRFT scheme comprises two high bay distribution units of 334,781 sq ft and 291,143 sq ft each with an integral two-storey office block which can be combined to provide 647,000 sq ft.
The combined facility would boast 15m eaves, a 50 kN/sqm floor loading and 51m deep yards as well as 60 dock and four level access doors( with the potential for a further four doors). It would have the capacity for 129,766 pallet spaces. In addition there would be 151 HGV spaces and 352 car parking spaces. Letting agents are Moriarty & Co, GVA, CBRE and Jones Lang LaSalle.
In Scotland Evander Properties’ Max scheme at Bathgate can also be combined to create a single unit of 655,500 sq ft. Letting agents are James Barr and CBRE.
Such is the shortage of space in the right locations that some occupiers are becoming increasingly creative to get what they want.
Sainsbury’s needed a new regional distribution centre in Basingstoke but failing to secure a site it decided the only way to move forward was to build it themselves. It has won permission for a 680,000 sq ft distribution depot at the Houndmills Estate in Basingstoke where it already trades.
The retailer will demolish its existing distribution warehouse complex on Houndmills Road and extend it following the acquisition of 10 acres of adjacent land from Linde. The complex development will be phased allowing Sainsbury’s to continue to distribute from the depot during construction.
It is thought the retailer will invest some £100 million in the project. The new depot will include a 550,000 sq ft chilled and ambient storage as well as 22,500 sq ft of offices on a 38 acre site. There will be parking for 400 cars as well as 11 HGV spaces.
Sainsbury’s has been associated with the site for forty years and employs some 700 people. It is expected a further 100 jobs will be available when completed.
According to Tom Hughes of Strutt & Parker such is the lack of supply of sheds over 300,000 sq ft that Sony has opted to redevelop its site following the fire caused by the riots during the summer of 2011.
“We have recently witnessed three requirements coming to the market (Sony, Wincanton and DHL) which so far have remained unsatisfied. Sony, based in Enfield until the fire, looked as far afield as Lutterworth to find a building that would accommodate their requirements and have now gone back into planning on their existing site.”
The only building in this size band is Isis Reach in Belvedere totalling 320,825 sq ft. The former Viking Direct cross docked distribution warehouse was built in 2001 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 passing rent is £6.46 per sq ft and the lease has 14 years remaining. Letting agent is Cronin & Co.
Mark Webster of Cushman & Wakefield warns: “From an occupational perspective the is so little left. A couple of the bigger buildings ( such as Blade in Sheffield) have traded in portfolios sales lately and occupiers may see a more aggressive attitude to letting the remaining voids but if an occupier is looking for 500,000 sq ft or above there is now a mere handful and occupiers will need to think ahead.”
Ranjit Gill of BNP Paribas agrees. “There are a lot of chunky requirements out there and buildings are being snapped up. There is interest in most of the 250,000 sq ft plus facilities in the Midlands. Those looking for a requirement of 300,000 sq ft will be seriously struggling.”
But there is one region where space is relatively easy to find says Charles Binks of Knight Frank, and that is in Yorkshire.
“The Yorkshire and Humberside market accounts for 27 per cent of all buildings over 100,000 sq ft. Interestingly occupiers could get very attractive deals [in the region] as landlords are all desperate to get rid of space.”
Blade is one of the larger units available totalling 415,000 sq ft it has a pallet capacity for 51,240 on a wide aisle basis and 71,624 on a narrow aisle basis. The property which also boasts 15m eaves, 40 dock and two level access doors, 184 car parking spaces and 83 HGV/trailer parking spaces and sits on a 25 acre secure site. Letting agents are Knight Frank and CBRE.
What’s the future for Green Buildings?
With so little space available and funding difficult to secure one might think that sustainability would be pretty low on the agenda. But Mark Webster of Cushman & Wakefield begs to differ.
According to Cushman & Wakefield’s latest Insight 500 research carried out in the late summer of 2011, 25 per cent of the logistics companies polled reckoned that opting for a green building would improve their CSR profile which in turn would lead to a better chance of getting new business.
Not all companies looked at green buildings as a way of getting new business; the vast majority, 44 per cent, stated that they opted or would opt for a green building to save money on running costs.
Gill says: “Sustainability has always been on the agenda and with things stabilising those looking to do build-to-suit will be looking carefully at the green initiatives on offer.
“Occupiers will be looking at the bottom line, the running costs and looking at initiatives that return much sooner. They are going to be very, very selective.”
Binks agrees: “Looking at those things [green initiatives] the occupier will be opting for those where they can see a genuine payback over a shorter period, – getting the biggest bang for their buck.”
Simon Cox of ProLogis says that in particular occupiers should look at energy efficiency of their buildings. “It is where people can benefit from their investments soonest. There is a lot of concern about energy costs.”
Luckily he says the new 2010 Building Regulations go a long way to push warehousing in particular into being more energy efficient.
Simon Lloyd of DTZ notes: “The whole environmental agenda has been left over the last few years although CSR is still important, now it is much more a financial deal. Many occupiers are facing the fact that while they have control over most costs they have no control on the pricing variations of utilities such as water and electricity.”
Looking at initiatives that have delivered, Rob Oliver of GVA says: “Good natural light with a better proportion of roof lights gives good savings as with god natural light you don’t need electricity.”
Keeping buildings air tight, looking at building orientation and adding in solar walls where appropriate have delivered many cost savings.
Paul Weston of ProLogis notes though: “We have not seen any premium paid for an energy efficient building.”
However he does concede that in the future those building that are more energy efficient will have more longevity. In the meantime he says that ProLogis will continue to ensure that its warehouses meet and exceed building regulations aiming for BREEAM Excellent.
Tim Johnson and Jon Sleeman of Jones Lang LaSalle warn that making logistics sustainable isn’t all about the buildings it is about the sustainability of the whole supply chain.
Johnson adds: “From a CSR point of view [a green building] ticks a few boxes and that is obviously an advantage; who knows how they will be valued it the future.”
1.4m sq ft of warehousing planned for Manchester Airport
Chancellor George Osborne unveiled plans for a £659 million Airport City at Manchester Airport in January.
The 150 acre site has been designated as one of the government’s new enterprise zones and will include 1.4 million sq ft of logistics and warehousing facilities.
The ‘stage two’ master plan identifies the creation of two core Airport City zones. The first is a development area adjacent to the airport’s existing railway station and to north of the M56, which will focus on hotel, office, retail and advanced manufacturing uses.
The second area, adjacent to the existing cargo centre at Junction 6 of the M56, will focus on freight and logistics uses.
The plan is that over the next 12-15 years, Airport City will deliver 1.4 million sq ft logistics & warehousing; 650,000 sq ft advanced manufacturing; 1.5 million sq ft of offices; up to 100,000 sq ft of retail and leisure; approximately 2,500 hotel beds.
Planning permission for the main site link road is due to be submitted within the next few weeks and upon approval could see work start in spring, with completion within 12-15 months. The new spine road opens up the site for development and while demand will drive the initial phases, the design is such that several plots and areas can be developed at the same time, giving maximum flexibility of location to occupiers.
The site was designated as one of the UK Government’s new Enterprise Zones last March. The aim of the 150-acre regeneration scheme is to deliver over five-million square feet of business premises, with the aim of attracting international companies that would not previously have located in the region, or even the UK.
Becoming fully operational from April 2012, it is estimated that the wider 116-hectare Manchester Enterprise Zone will create up to 20,000 new jobs over the next 15-years.
Sir Richard Leese, Leader of Manchester City Council, said: “Airport City will provide an innovative and complementary offer to Greater Manchester’s existing assets, rather than competing against them, adding new capacity to the city’s existing dynamic economy. Manchester is well placed with an international offer based on established academic research and technology, innovative businesses, communications and transport infrastructure.”
Charlie Cornish, Chief Executive of Manchester Airports Group (MAG), said: “Airport City is a concept we have been developing for a number of years and we are now at a critical stage in the project’s life as we bring it to the market and commence phase one.”
Manchester Airports Group is currently preparing to undertake the first stage delivery of the project, which will involve the creation of key road elements, landscaping, infrastructure and utility provision, all of which will help enable the first phase of development plots. Planning permission for the main site link road is due to be submitted within the next few weeks and upon approval could see work start in spring, with completion within 12-15 months. The new spine road opens up the site for development and while demand will drive the initial phases, the design is such that several plots and areas can be developed at the same time, giving maximum flexibility of location to occupiers.
Development plan for Blackburn
Hyndburn Borough Council has granted outline planning permission for a 90 acre site at junction 6 of the M65 just outside Blackburn.
Whitebirk Sixty Five has a net developable area of 66 acres (26.7 ha) and the local authority has given outline consent for about 1m sq ft of mixed use development include warehousing and distribution, and light industrial.
The Manchester office of Matthews & Goodman has been instructed, jointly with Ingham & Yorke, to sell the development.