Developers reacting too slowly to change in the marketplace

LinkedIn +

Location, location, location remains the property market watch word, although it is no longer safe to assume that a good logistics location is simply measured as the proximity to an arterial motorway. This may have been the case when both land and labour were in abundance, but in a market where planning consents are hard to come by and employment is at a long-term low, other factors have become more influential in determining where developers look for good logistics opportunities, such as scale, local labour and cost-effectiveness.

Dealing with scale, a recent exercise undertaken by King Sturge in conjunction with Cranfield University has identified that over the past eight years the size of large warehouses (9,300sq m and above) has risen from an average of 16,926sq m to 26,784sq m in 2003. Larger buildings mean larger sites, which in turn leads to fewer development opportunities.

In the North-west this has led to occupiers being forced to consider ’emerging locations’ such as St Helens and Skelmersdale at the expense of the traditional North-west hot spots of Warrington and Trafford Park.

Planners still believe that ‘distribution centres (B8)’ offer little or no economic value compared with sheds used by ‘general industrial (B2)’ due to the misconception that distribution is fully automated and contributes nothing towards local employment needs. This is clearly not the case and logistics has never been the domain of robots. In fact, the quest for lower cost products and the ‘global reach’ of many suppliers has lead to the B8 Use Class being a labour intensive sector.

Operators are frequently using their facilities for ‘added value’ services such as sub-assembly, repackaging, direct to outlet sorting and re-branding. Locations providing flexible cost-effective labour, together with good quality amenities to assist with recruitment and staff retention are crucial in this competitive marketplace.

AMEC Developments acquired a 135 acre site straddling J23 of the M60 motorway in Ashton. Ashton Moss not only provides a deep flexible labour pool, but we have already primed the site with both retail (J Sainsbury) and leisure amenities.

Finally, cost-effective and emerging locations in the North-west region, such as St Helens, Skelmersdale and Wigan, are increasing in popularity and remain cost effective, but for how long?

Why should we concern ourselves with the property investment market? Ignore it, however, at your peril. Traditionally, developers believed that utopia was to be found in smaller individual buildings as they would appeal to a deeper occupational market, while also being affordable to a larger number of smaller investors. While this logic remains valid, it is clear that there is now no perceivable discount for larger product.

Investors follow the market, and as occupiers continue to require larger buildings, then investors see this sector as being more competitive in years to come. Furthermore, the more sizeable financial institutions are looking to acquire entire distribution parks in order to control both the management of the estate and the rent review process for all the individual units.

According to a recent King Sturge UK Industrial and Distribution Floor Space Today publication, the total available floor space in the North-west over the past 12 months has decreased by 23.9%. This is an interesting statistic when there is a worrying over-supply of new circa 9,300sq m units which, I suspect, is a result of developers reacting too slowly to changes in the market place.

The bespoke nature of logistics property means that most developers consider a speculative approach to construction as being too risky. However, many developers, including ourselves, are assembling land in areas that score highly on a criteria set out above, securing planning consent and investing in early infrastructure such that the reaction time between initial enquiry and completion of facility is minimised.

Finally, be mindful that the developer is at the end of the new facility procurement chain and would welcome a little more time to deliver your vision! n

Matt Crompton is director at AMEC Developments. Tel: 0161 888 1646.

Share this story: