D&B activity now accounts for more than half of warehouse take-up in the UK.
Build-to-suit or D&B activity now accounts for more than half of warehouse take-up in the UK because occupiers cannot find the appropriate space in the right locations, according to CBRE’s latest UK Logistics Marketview report.
“Of the 10.6 million sq ft taken up in warehouses exceeding 100,000 sq ft in the first half of 2012, over half were build-to-suit deals,” says Paul Farrow of CBRE: “There has been a marked increase in design and build activity from occupiers.”
Ranjit Gill of BNP Paribas also notes: “As occupiers realise that there is a restricted amount of new stock coming onto the market, the demand for better quality second hand stock continues to increase, causing supply to further fall. This market dynamic is helping to create an interest in design and build facilities.”
BNP Paribas’ recent research document reports that nationwide, take up in the second quarter of 2012 rose by 26 per cent compared to the first quarter of the year, totalling 8.54 million sq ft. The biggest increase was seen within the design and build space, where take up rose to 2.59 million sq ft compared to 0.40 million sq ft in the first quarter.
Such is weight of demand that the return to big shed speculative development has just not happened. Developer Roxhill was tipped to go ahead with a speculative development at its 26 acre Brackmills Point scheme after securing funding with SWIP but an occupier swooped in and snapped up a 16 acre plot for D&B instead. The site is rumoured to have been secured by German logistics company Dascher.
In a similar vein a 37 acre parcel of land is thought to have been secured by Travis Perkins at Milton Ham on Northamptonshire. It is located adjoining Junction 15A of the M1 motorway.
It is thought Travis Perkins will go forward with a D&B project to provide a new headquarters and distribution base as part of overall expansion plans. The site was being marketed by BNP Paribas. Chadwick McRae advises Travis Perkins. Both parties declined to comment.
It certainly seems that occupiers in certain locations are becoming accustomed to D&B. David Willmer of GVA says: “The D&B market is starting to gear up. The issue for 3PLs will be can they take long enough leases; [they] really need to be 10 year plus.”
There are some developers willing to be more flexible. ProLogis announced a new build-to-suit five year lease initiative in the UK to meet the needs of customers seeking modern distribution space on a short term basis earlier this year.
In exchange for a five year lease commitment, ProLogis will develop a high quality, sustainable distribution centre. The offer includes fit-out and because it is available on prime ProLogis sites that already have detailed planning consent, new facilities can be fully operational within 10 months of construction work starting on site.
The five year lease offer is open on two sites: ProLogis Ryton near Coventry and ProLogis Kettering. Detailed planning consents are for a 310,000 sq ft facility in Ryton and a 340,000 sq ft warehouse in Kettering.
Simon Norton of Colliers says: “This is a significant departure for the industrial sector, where ten or 15 year leases are the norm on design and build. Most developers would struggle to get funding for a pre-let on five years, but ProLogis has deep pockets and a land bank that is largely oven-ready, with planning permission and infrastructure in place.
“I imagine there are caveats: ProLogis will most probably be looking at space in excess of 100,000 sq ft, and for tenants with strong covenants, but it’s an interesting development none the less, and likely to appeal to retailers and 3PLs in particular.
“With deals like this on the table I suspect I am not alone in thinking the bottom of the trough is behind us. ProLogis is banking on rents continuing their northerly climb and a rent review five years hence could give them a nice return. With this in mind I imagine most developers will be accommodating as there are an awful lot of sites out there and not all are as prime as one would like. Thus they are all open to offers.
Willmer notes: “A lot of developers cannot speculatively develop and have been getting sites as oven ready as possible so that when the D&B markets comes, they are ready.”
Sean Bremner of Lambert Smith Hampton says: “Occupiers have a good choice of sites therefore [occupiers] should be able to secure a good market deal.”
That is not to say that the D&B option is as cheap as standing stock; it isn’t. As a general rule of thumb rents for D&B will tend to be anything from £1.50 – £3 per sq ft more expensive depending on the deal terms.
The key to the deliverability of sites is infrastructure. Those that have it can produce a fully functional bespoke warehouse within nine months. Gazeley has just started on a £5.2 million investment in infrastructure and enabling works across its UK portfolio. It will concentrate on installing infrastructure across a number of wholly owned sites within its UK portfolio, allowing the company to deliver at speed to meet bespoke customer requirements.
Charles Blake of Roxhill says: “If an occupier knows what they want and allows a developer to get on with it there is no reason why the build cannot be up in less than 35 weeks.
“Early access is becoming a common feature available to occupiers who need to be operational as quickly as possible. Effectively the warehouse is made available in advance of the building completing. So while the main contractor is finishing various elements of the facility the occupier can be certainly be fitting out. A fully operational building in theory could be available within five months.”