The government is hoping a holiday from empty property rates will help get the economy moving – but what impact will it have on the warehouse market.
In its attempts to kick start the flagging economy the government has announced that new warehouses built between 1 October 2013 and 30 September 2016 will be exempt from empty property rates for 18 months fuelling expectations that there will be a plethora of speculatively built sheds by the end of this year.
Mike Price of Johnson Fellows says: “The decision has effectively added another 12 months of void rates on industrial and distribution property. Since the current rating regime started there have been virtually no newly started schemes. The effect could be that, for example, if a scheme of 100,000 sq ft was built and the units not let until 18 months after completion the cost to the developer would have been in the order of £250,000 in empty property rates.”
Jon Sleeman of Jones Lang LaSalle notes: “At the end of September 2012, total available supply across Great Britain stood at 332.8 million sq ft, of which almost three-quarters was in units below 100,000 sq ft. In comparison with recent levels of take-up, this equates to just over three years’ worth of demand.”
At present Jones Lang LaSalle is aware of some 24 million sq ft of unsatisfied big box requirements in the market. With so little good quality suitable facilities, many occupiers have been taking the build-to-suit option.
Cameron Mitchell of Jones Lang LaSalle says: “In 2012 our preliminary figures show that some 68 per cent of all new space taken up involved build-to-suit facilities.”
In 2010 build-to-suit accounted for 46 per cent of all new space. According to DTZ although most regions are reporting shortages of existing Grade A stock and little development scheduled, most regions appear to have a healthy supply of potential development land.
However, not all of it is available for immediate acquisition. Sites without planning, infrastructure and basic services will take a lot longer to come to market. Nigel Dolan of developer Goodman says: “Developers with their own financial resources will be ahead of those that don’t and have to seek external funding.”
At its Hinckley Commercial Park scheme Goodman is investing some £14 million in infrastructure and at its Derby and Crew schemes infrastructure is already secure.
Oven ready sites can provide occupiers with fully functioning properties within 35 weeks, indeed Matthew Small, director of Hamden Gate Developments, which has just acquired 16 acres of land at ProLogis Rugby Central Park consisting of three development plots, reckons he can secure buildings in less time. “We have already appointed contractors and we are able to deliver industrial/warehouse buildings within 28 weeks.”
Property investment manager PRUPIM has just paid £47 million for the freehold of a one million sq ft warehouse located in the prestigious Golden Triangle in the Midlands.
The warehouse is situated on a 42 acre site on the Brackmills Industrial Estate, Northampton, let to Howden Joinery Group until March 2019. It is thought that after the building has been vacated PRUPIM will redevelop the prestigious site.
With the announcement, these sites and others like them could potentially be speculatively developed by the end of the year. Indeed Jones Lang LaSalle’s research suggests that up to two million sq ft of speculative development could be built in 2013.
Mitchell says: “With one exception – a development by MUSE at the Eurocentral site in Mossend Scotland – there has been no new speculative development involving large (100,000 sq ft +) logistics facilities since 2008. As a result the supply of speculative space has fallen by more than 70 per cent from a pre-recession peak of 28.8 million sq ft in 117 units to around 8.1 million sq ft in 36 units currently.”
Mitchell is not predicting a sweeping return to speculative development, rather a selective return by developers in prime markets only such as The Golden Triangle in the Midlands, London and wider South East.
Indeed even before the government’s announcement ProLogis indicated that it would consider the speculative development of one of the two 300,000 sq ft buildings at its ProLogis Park Dunstable scheme.
Andrew Griffiths of ProLogis said: “We will make a decision on speculative development once the revised planning application has been approved. Our decision will also be subject to on-going pre-let discussions.”
SEGRO has also indicated that it will go ahead with the speculative development of the first phase of its Origin distribution warehouse site in Park Royal, London, subject to securing planning. The development will cover 160,000 sq ft in three stand-alone buildings.