As at the middle of July, FPDSavills Research had identified 42 schemes that were in the development pipeline within the M25 northern sector, a market area that stretches from the M40 eastwards to the Thames and goes as far north as Stevenage. Of these 42 schemes, only 17 have a likely completion date while only five of the 17 are above the 18,600sq m (200,000sq ft) mark. The main question is whether this supply is sufficient to meet occupier demand.
Comparing the square footage of the potential development pipeline and current availability with the characteristics of take-up, all in terms of size brackets, it becomes apparent that a mismatch is emerging within the northern sector at the top end. Having reviewed all occupational deals since the mid-1990s, the 18,600sq m (200,000sq ft) plus category has accounted for 2% of the total number of deals signed. At present, around 1% of the existing properties currently available are within this 18,600sq m (200,000sq ft) plus category.
Despite the fact that it appears we are dealing with small numbers, the bottom line is that the five planned schemes referred to above will only go some way to plug the future demand gap. Therefore, the laws of supply and demand suggest that the large-scale developments currently being built speculatively should prove to be popular with occupiers as they acquire space within an improving market.
With the increasing trend for speculatively developed large warehouse properties, what should developers be building in order to ensure their products appeal to the widest possible market? In broad terms, the current industry standard specification is to provide speculative warehouses with: eaves height of at least 12m clear; low site density; one loading door for every 930sq m (10,000sq ft); capability of subdivision for temperature-controlled chambers; and be self-contained.
In addition, in the South-east occupiers generally wish to be within a 20-minute drive time of the M25 so that the national motorway network can be easily reached. These demands present a tall order within the current market and the question is where can such a property be found?
Well, there are only a few, but one such example is Gazeley & Standard Life’s Ultrabox (pictured), the largest speculative warehouse currently under construction in the South-east at Purfleet, Essex only one mile from J31 of the M25. Construction started on the 45,428sq m (489,000sq ft) distribution warehouse in June this year, and completion is scheduled for early December 2004, with the whole construction process taking barely six months.
By the time practical completion is reached, Ultrabox will be the largest speculatively- developed distribution warehouse available within the M25 by some margin, separating it from the competition and putting it into a league of its own. It is capable of serving the Greater London area, and provides access to a large proportion of the country within a 4.5 hour drive time thereby complying with the Working Time Directive.
Gazeley and Standard Life are confident of the prospect of attracting a major tenant for Ultrabox in the not too distant future, given the strong expressions of interest already received from a number of potential occupiers from the retail (both food and non-food) and third-party logistics sectors.
Nigel Godfrey, development director at Gazeley, comments: “Increasingly we are seeing demand for super-sheds of around 500,000sq ft from retailers and third party logistics firms. In Purfleet we saw the opportunity to develop such a product [Ultrabox] on the M25 east in an area with a land supply shortage situation coupled with good labour availability. We’ve already had some encouraging approaches from occupiers.”
The acute shortage of development sites in the South-east (particularly within the M25), which can accommodate large-scale industrial/warehouse property, is not solely down to land supply constraints. Planning constraints also play a large part in limiting opportunities for occupiers and developers alike given the long-standing perception of many local authorities that B8 (Warehousing & Distribution Use) is not sufficiently employment generating compared with other uses such as manufacturing.
Of course this is not always the case in practice, with many B8 operations generating a large number of jobs, often more than their manufacturing counterparts do. This was recognised by Thurrock Unitary Authority in the case of Ultrabox when it granted planning permission for the development earlier this year.
To counter the lack of supply of existing large scale warehouse developments, and encouraged by improving market conditions, many developers are taking the opportunity to develop larger warehouses on an speculative basis, recognising the immediate- and medium-term shortage, so that any requirements can be reacted to as quickly as possible. Gazeley is a case in point. It is committed to developing more than 209,250sq m (2.25 million sq ft) of warehouse accommodation speculatively in the UK by 2005.
In addition to Ultrabox, Gazeley is currently developing a unit of about 21,576sq m (232,000sq ft) at Dagenham Dock (3D Magic) and is in discussions with a contract-led occupier for the warehouse. Gazeley, in conjunction with MetLife, has also started constructing two stand-alone units of around 23,622sq m (254,000sq ft) and 15,345sq m (165,000sq ft) at its joint venture site in Hemel Hempstead (G Park Hemel).
One of the driving forces behind developers’ decisions to build speculatively is the pace of dynamism in the retail market. It appears that, however, thorough as a retailer’s supply chain strategy is, it can be susceptible to rapid change for a number of reasons, and this presents property as well as operational challenges. For example, Waitrose’s recent purchase of 19 former Safeway stores around England from WM Morrison will doubtless have property implications.
Logistics decisions are often not made until other strategies have been determined, and often the lead-in time from finalising a strategy, to implementation is short particularly in the case of logistics firms pitching for contracts. If the strategy can no longer be serviced from existing properties held, a new property is therefore required, and generally needs to be up and ready, rather than available as a design and build opportunity where planning and the development timetable can deter would-be occupiers. In some instances, then, speculating to accommodate is the answer! n
Ed King is with FPDSavills’ Commercial’s industrial department. Tel: 0207 499 8644.