The FTA may hate it but the people who build big sheds love it. The Government is in a corner over the EC’s new WTD but the recent introduction of a 48-hour week will lead to demand for logistics space, especially in the South-east.
The London market is one where it takes so long for goods to get in and out of the metropolis that any reduction in the drivers’ working week will force firms into looking for more space, and they will look and find it around the M25.
FTA director of policy and deputy chief executive James Hookham admits that van operators and drivers will suffer the brunt of the reduced working hours – the Government’s own impact assessment report suggests a 10% loss of productivity, coupled with a £1Bn cost. Logistics companies will only get round the impact on their businesses by increasing their distribution networks.
The north and east sides of the M25 will be the hotspots, by virtue of their access to markets and the availability of land. There has been activity on the development front, mainly by the bigger developers.
ProLogis has big schemes that it has built out speculatively, including the 17,670sq m “Atlas” building at Edmonton and some 25,390sq m at River Road, Barking, both on the market at £7.75 per sq ft. It has built 8,000sq m at Edmonton, now let to Heals, and let its 8,370sq m unit at Park Royal to D-Link on a 15-year lease with a ten-year break clause close to the asking rent of £10.50 per sq ft. Astral let 14,880sq m to Tesco at Hatfield and Gazeley pre-sold last year the freehold of a 20,000sq m distribution centre to Porcelanosa, a Spanish ceramics and bathroom specialist, for £20M at G.Park Watford.
Located next to the M1’s J5 with access to the A41, Gazeley bought the site from Green Properties in June 2003 for £15M. The site already had an operational John Lewis distribution centre, the lease of which was re-geared and later sold to Merrill Lynch for £5M.
If Essex and Hertfordshire are pushing themselves forward, Kent is the Cinderella section of the M25. It can get overlooked – the river is a psychological barrier. Even though Kent is only a mile across the bridge, it is much further in people’s minds. Dartford has seen some activity by the bridge – ProLogis is planning a big park there and Sainsbury’s has done a deal; Astral is building Bronze Age Park on the old Pirelli site at Erith; and Gazeley has land that it bought at Sittingbourne.
ProLogis Dartford will be among the first distribution parks to lead ancillary development such as residential and shopping.
Astral Developments and Apollo Real Estate Investment Managers, which have bought the 36-acre former Pirelli site at Bronze Age Way in Erith has submitted a detailed planning application for an £80M, 58,590sq m, three-unit industrial development.
Gazeley has done prime sheds just over the QEII Bridge in Essex, and is keen to let its 45,670sq m Ultrabox scheme at Purfleet. Now it has bought land at Kemsley Fields, Sittingbourne. Arguing that price is the big driver for the Kent market, Gazeley plans to produce sheds at Kemsley Fields at a low cost. It believes that, for some occupiers, cost is the most important issue.
Croydon turns over regular amounts of space for people wanting to serve the South London market and the southern England. But it lacks availability of large sites with good access to the M25, although ProLogis has plans to provide 14 acres of build-to-suit space in Purley Way.
Just round the corner from Surrey is the Bel Air of M25 shedland. Hitherto, Heathrow has led the industry in terms of high rents. But it will be left out of the forthcoming mini-boom. It is a place for occupiers needing to be near the airport. It is too expensive – a good £4 per sq ft more than other M25 locations.
As for rents, I expect them to remain steady this year. There has been a softening in demand from the retail sector, which was a key driver last year. This could be more than mitigated by the WTD.
A more upbeat message is that bosses who have been finding trading difficult are not frightened of taking space. They are aware that distribution can deliver better efficiency and more profit to their companies, so just because trading is bad does not mean they will not choose to look for new sheds. There are some useful requirements in the market. Boots requires a new distribution network; Superdrug wants 27,900-37,200sq m in the South-east; and Danish furniture retailer Ilver wants 9,300sq m in Thurrock. The WTD will prompt demand for even more space.
Andrew Jackson is a partner at North Rae Sanders.
Tel: 0207 493 2180.