The UK market for distribution property has proved to be strong over the past couple of years with occupiers seeking to centralise their requirements into ever larger single buildings. Demand within the sector has been driven by retail through both consumer spending and the reorganisation of distribution facilities.
However, over the past six months demand has reduced considerably due to the threat of the slowdown in consumer spending and world events centred around the Middle East. As a consequence, third-party distribution companies who have recently created significant demand within the market are experiencing long delays or even cancellations of proposed projects. South Wales has not been immune to these general market trends.
Despite these issues, retailers are continuing to expand and, as a consequence, there remains a prospect of further requirements as well as those that already exist within the market. Many of these enquiries are centred on specific locations although some of the larger requirements for distribution space tend to be more footloose within the UK. This is illustrated by Wilkinson Stores decision to locate a 79,050sq m distribution centre at Loc8, Magor (J23A on the M4) in 2000 when it was understood that the alternative was to locate in Kent.
The trend for distribution requirements within the South Wales market tends to be from retail occupiers for the acquisition of freehold sites especially for larger requirements of 9,300sq m and above. Often these requirements will be servicing a wider region than simply South Wales and the occupier will prefer to locate as centrally as possible within the search area, whilst having regard to cost implications.
There is a significant shortage of modern distribution premises in excess of 9,300sq m within Wales having easy access to the M4 motorway. The majority of modern distribution stock is situated around the Chepstow and Magor areas of south-east Wales serving the first and second Severn Crossings respectively. The area houses Tesco, Asda and Wilkinson having total floor space in excess of 186,000sq m in the two locations. The foremost dedicated distribution park is the former Gwent Europark which has recently been re-branded as Loc8. The park houses distribution centres of 79,050sq m for Wilkinson stores and 59,520sq m for Tesco with further land available which can accommodate a single unit of up to 74,400sq m. The park is only one and a half miles from J23 of the M4, providing quick access to the second Severn Crossing and the M50 motorway from J28.
Cardiff is set to benefit from a rail-connected employment site to the east of the city centre at Wentloog. Cardiff County Council and the Welsh Development Agency, advised by Knight Frank, have chosen a preferred developer as joint venture partner to create the first dedicated employment park with a direct access to the Swansea/Paddington main line. The site covers a total area of about 32 acres and is in close proximity to the Port of Cardiff and the A48(M) leading to the M4.
Occupiers requiring smaller premises to service South Wales will often prefer to be centrally located around Cardiff as evidenced by the recent requirements of Debenhams and Harvey’s which are located on Ocean Park in Cardiff Bay. However, given the significant retail growth within South Wales occupiers are seeking larger sites in close proximity to the M4 in the Cardiff area. Although there are significant tracts of land to the east and west of the M4 corridor in South Wales the supply of land around the capital is in short supply.
Given the significant retail developments which are due to be undertaken within Newport and Cardiff and the growing presence of many retailers within South Wales, this may lead to an increase in requirements of distribution premises within the locality. However, this opportunity needs to be measured against retail occupiers’ continuing preference to centralise their distribution operations within a single building.
On a UK wide basis, land and labour within the traditional ‘golden triangle’ for distribution occupation within the Midlands are becoming evermore scarce and planning permission is more difficult to secure. This has seen occupiers increasingly look for cheaper alternative locations to the benefit of the Yorkshire area in particular. South Wales should seek to benefit from the shift in locational demand given the attractions of superb communications, available workforce and significantly reduced property costs when compared to the Bristol area and more traditional distribution locations.
Historic demand within South Wales has been from third-party distribution companies operating on behalf of significant manufacturing occupiers within the area. These occupiers continue to have major requirements for storage and distribution space. The poor health of the economy has led numerous occupiers within South Wales to rationalise property occupation. There are a number of significant manufacturing companies which have recently disposed of part of their operational premises. The surplus space has generally been acquired by investors and leased to occupiers requiring cost effective distribution and storage space.
This trend is set to continue with further manufacturing closures likely to be announced in the short term. However, over the past 12 months more than 93,000 sq m of this surplus accommodation has been acquired by companies including Eddie Stobart, MFI, Interbrew, Hasbro and John Raymond Transport for storage and distribution. The accommodation tends to be provided on flexible terms by investors allowing break clauses and at affordable rents in comparison to new build.
The distribution sector is experiencing a period of restructuring and uncertainty regarding the economy and consumer spending within the retail sector. However, South Wales represents a cost-effective alternative to the traditional distribution locations and benefits from superb communications. There continue to be significant requirements within the locality for both new build accommodation and existing accommodation offering cost effective distribution and storage. n
Rhys Morgan is with property agent Knight Frank. Tel: 02920 492492.