Over the past two years, the North-west has seen a major upsurge in demand and take-up in the ‘Big Box’ market, involving new, large distribution facilities ranging in sizes in the main from 18,600sq m to 46,500dsq m (200,000 to 500,000sq ft). The North-west share of the UK take-up figures for new distribution units of 9,300sq m (100,000sq ft) and above was 25% in 2003 (2.3 million sq ft) and approximately 12% for 2004 (1.7 million sq ft). According to King Sturge research, this compares to a previous average annual take-up of 10% of the UK total between 1995 and 2002.
The pattern of current demand is very consistent with the first wave of high-bay warehouse demand seen in the 1980s, which was started by the food retailers looking to consolidate and move to fewer, larger facilities. They were followed shortly thereafter by the high street retailers, and then by the manufacturers in the late 1990s.
This cycle of restructuring and consolidation is now repeating. The food retailers have already been through the second phase, although there is still a substantial amount of residual demand still to be satisfied. The non-food retail sector is in the process of second regeneration restructuring, with the manufacturers, particularly those involved in food, likely to make their presence felt in the short-term.
Whilst not always the case, it is often that when restructuring their distribution networks, users tend to concentrate initially on the Midlands and the South-east as these are the largest conurbations, with the other regions following thereafter. We believe this is one of the reasons why the North-west has experienced a major upsurge in demand above the normal take-up levels over the past year or so.
The third-party logistics contractors will also continue to consolidate by merger/acquisition and where possible, sourcing several contracts in fewer, larger facilities to create wider margins.
In line with other regions, the shortage of large plots of land, labour shortages and rising property costs in many established distribution locations, has resulted in operators increasingly looking at ‘new’ locations for large facilities. In the North-west, Merseyside, including Skelmersdale, Liverpool and the Wirral peninsula, has benefited from this trend. Skelmersdale, in particular, has seen a number of significant deals, such as Comet with 43,059sq m (463,000sq ft); Asda with 32,550sq m (350,000sq ft); and Great Bear Distribution with 48,174sq m (518,000sq ft). The latter represents the first major speculative unit built in the North-west by Gladman Developments.
Reflecting the increased demand for larger facilities, several developers are now looking to bring forward speculative units. Following its success at Skelmersdale, Gladman is looking to bring forward two further schemes of between 46,500sq m (500,000sq ft) and 55,800sq m (600,000sq ft) at Liverpool International Business Park, Speke and Harehills Business Park, Heywood.
Rosemound has acquired a site at the Pioneer Business Park at Ellesmere Port for a 60,450sq m (650,000sq ft) building while Gazeley is in the process of acquiring the remaining part of the XL site at Skelmersdale, and is looking to bring forward a 46,500sq m (500,000sq ft) unit. Quorum/Beva Group, having acquired the former Fermec site earlier this year, are looking to build a 35,805sq m (385,000sq ft) spec unit at Merlin Park, Trafford Park.
Elsewhere, as an alternative to new build, there are two refurbished existing facilities which are attracting significant interest. The Hub at Heywood Distribution Park, North Manchester (Moorfield Group/Westbrook Partners) comprises circa 46,500sq m (500,000sq ft). The building was built in the 1970s and has the benefit of 11m eaves, together with an existing narrow aisle racking system and in-rack sprinklers. Magnum at Walker Park, Blackburn (Bilsdale Properties) which comprises the former Corus building of about 43,710sq m (470,000sq ft) has been totally re-clad with eaves heights of between 8m to 10m with the potential for cross docking.
Both of these properties provide good value in comparison to new build and are available on more flexible leases. The lower level of upfront fit-out costs and flexible lease structures will be particularly attractive to the third-party logistics market.
In the event that all the above mentioned speculative developments proceed, the opportunities for end-users to acquire sites to undertake their own development of 20 to 30 acres or more within the next year or two, will be extremely limited throughout the North-west.
The larger schemes proposed for the region include:
Omega at Warrington (1.7 million sq ft B8 – NWDA/Miller Developments).
Kingsway Business Park at Rochdale (250 acres net – NWDA/Wilson Bowden/Rochdale MBC).
Barton Moss at Salford (circa 150 acres – Peel).
Trafford Interchange at Carrington (435 acres – Burford/Shell).
These are probably, for a variety of reasons, at least two years away from being able to provide completed buildings, which clearly presents a window of opportunity for the proposed speculative developments.
Headline rents achieved on ‘Big Boxes’ on both speculative and bespoke units (where sale and leasebacks have been arranged) have varied, depending on location and warehouse fit-out, between about £3.75 to £5.00 per sq ft. Demand for the created investments has been particularly strong, with yields varying between 6.25% to 7.25% depending on covenant strength and lease lengths, which have been between 1ten and 20 years.
Expect a busy 2005 in the ‘Big Box’ distribution market in the North-west! n
David Brooks is a partner at King Sturge and head of its UK Industrial and Distribution Group.
Tel: 0161 238 6239.