Like the paparazzi surrounding celebrities, agents and developers are crowding round the warehouse market in the southern part of the M1. And like the paparazzi, they are creating problems for themselves.
The land prices in the south, which provide the push for higher rents from schemes in the south, also make those rents harder to achieve and the dwindling supply of land in the Midlands means that guaranteed money earners are now priced out of the pockets of many distributors. It means there’s an A-list of occupiers, with the 3PLs playing the role of footballers and pop stars and retailers themselves, with their 250,000 sq ft+ requirements, the royal family. The traditional industrial market has been relegated to the back pages.
But, just like paparazzi and their prey, the distribution requirements are looking further afield – not for privacy but for value. All agents warn there is a real risk that the sudden discovery by a retailer of a viable national distribution centre in Sheffield, Skelmersdale or points north will lead to a scramble to get out of the high salary / high rental / low supply areas in the south.
Even the A1 has benefited. Jeremy Hoare, associate director at Eden Park Developments, says there’s a limited supply of land along the M1 corridor but that the A1 is an emerging market chosen by a number of occupiers because of the availability of large scale sites which can accommodate large scale buildings. “It’s also a cheaper alternative than the M1 corridor,” he says. “And the fact the east – west links are getting better makes it more accessible.”
Eden Park, part of the Fiducia Group, has received planning permission to build a 30,000 sq ft shed on a 1.5 acre green field site near junction 17 of the A1M in Orton Southgate, Peterborough. Available in summer 2006, it will be available on a freehold or leasehold basis at £70 or £5.50-£5.75 per sq ft. Agents are Barker Storey Matthews and Budworth Brown.
More activity on the A1 side: Rosemound sold SGI in Stevenage to Kilmartin which has started building a six-unit scheme of approximately 70,000 sq ft with unit sizes ranging between 10,000 sq ft to 14,500 sq ft. Other tenants at the site include supermarket supplier Flamingo and builders merchant Build Base.
The decreasing amount of land and labour along the M1’s southern half is driving occupiers to consider other distribution locations. With mega sheds operating 24 hours a day, seven days a week, distribution is becoming more labour intensive and the rising cost of operating in the traditional centres is slowly being grasped by developers as well as occupiers.
According to research by Lambert Smith Hampton, rents in the south have remained stable in recent years – but developers are offering incentives. And following a modest downturn in 2003, take-up along the M1 Corridor recovered to above its ten-year average of 10.8m sq ft in 2004. A total of 6m sq ft let in the first half of 2005.
Among the star deals, Cadbury Schweppes 350,000 sq ft at Snelshall, Milton Keynes, for £5.75 per sq ft; Tesco took the 750,000 sq ft Rosemound’s Phase 1, DIRFT at £4.70 per sq ft; and Morrisons bought 428,000 sq ft at Swan Valley Park, Northampton, for £60 per sq ft.
In the meantime, most developers still worry mainly about land prices. LSH puts these at £1.1 million per acre for Watford, £600,000 for Luton and a little less for Milton Keynes, dropping to £400,000 for Northampton and £250,000 for Daventry. However, it puts Doncaster as low as £200,000. The highest prices may see yet another hike, which gets agents muttering about whether this market is sustainable. There’s a rumour that Frontier Estates is close to buying the IKEA site at Grange Park, Northampton, for around £600,000 per acre. Ikea had hoped to build a 328,000 sq ft store there but failed to obtain planning permission.
Starting in the south, LSH says that the area close to the start of the M1 motorway has seen stable market activity with freehold units ranging from 10,000 sq ft to 30,000 sq ft particularly strong. Local occupiers continue to provide the main source of demand so large deals are rare.
There is a lack of new and refurbished stock with a high proportion of available stock being second-hand. Older properties are more prevalent due to historically high levels of owner-occupation. Elstree dominates the supply, where rents for new stock are reaching £8 per sq ft.
Also in the London orbit, within shouting distance of the M25, the leasehold market continues to be overshadowed by the freehold market mainly due to the low interest rates, according to LSH research. Small to medium-sized freehold units are the mainstay of the market, with new developments now catering for this demand, particularly in Potters Bar, Watford and Hatfield. However, due to the lack of freehold supply in Hemel Hempstead, leasehold activity, particularly within the second-hand market, has seen the most activity.
The region also attracts occupiers looking for larger units. Gazeley completed two units in March totalling 419,000 sq ft at Maylands Avenue. One of the largest disposals was a 220,000 sq ft unit in Otterspool Way in Watford which was pre-sold to Porcelanosa for £20m, with the ceramic tile company taking possession in March 2005.
Savills is instructed at G-Park, Hemel Hempstead – the Old Dexion site that has been redeveloped into two units of 260,943 sq ft and 167,730 sq ft. It is offered for sale or to let and both units are available now. Savills’ Laura Sutton reports that 3PLs and large retailers have shown interest in the site.
The 465,000 sq ft speculative “Mammoth” unit on Boundary Way was completed in October 2005. And Gillette’s is keen to let its Hemel Hempstead buildings on Boundary Way totalling 360,000 sq ft. Gillette will vacate the buildings in March 2006.
LSH reports that prime rents in Watford remain at £8.50 per sq ft with capital values continuing to achieve levels up to £140 per sq ft. Due to a lack of new build stock, prime rents in Hemel Hempstead have increased to £8 per sq ft. Freehold values in St Albans remain at £115 per sq ft while prime rents are stable at £7.75 per sq ft.
The market in Milton Keynes is characterised by a lack of new space. However, English Partnerships has a 14-acre site at Snelshall West capable of taking a building up to 250,000 sq ft.
ProLogis Park, Marston Gate, in Milton Keynes has seen activity: DTS took 100,000 sq ft on a five-year lease at £5.35 per sq ft while Aid Pack took 103,500 sq ft on a ten-year lease at the same rent. Also in MK, NYK Logistics took a 106,400 sq ft refurbished distribution facility Bradbourne Point, Tilbrook, at a rent of £5.50 per sq ft.
The deals are signed, the flashbulbs pop: there’s no doubt that the M1 South’s location as serve-all for the UK has and will see it through hard times. What the market worries about is whether it is maximising its potential at the moment.
There are grants to be had in Dunstable until December 2006. In 1999, the UK Government designated three wards in Dunstable and Houghton Regis, South Bedfordshire as an Assisted Area. This means businesses may be eligible for grants for new business start-ups, new investments, expansions and modernisations of existing businesses and relocation. The two types of grants you can have are Regional Selective Assistance (RSA), and a Regional Enterprise Grant (REG).
The RSA is available for capital projects for which you are paying more than £500,000. You can claim back 15 per cent to go towards the purchase of plant and machinery, the purchase or lease of land and buildings. You need to demonstrate that a grant is necessary to enable the project to go ahead as planned and that the project creates or safeguards jobs (the higher the skills, the bigger the value put on them in grant consideration).
The RES is for small and medium-sized companies investing in capital projects up to £500,000 that would not otherwise go ahead The maximum grant payable is 15 per cent of the eligible capital expenditure (within the Assisted Area) up to a maximum of £75,000 and 7.5 per cent elsewhere.
Savills is acting on sites in Dunstable and reports that all of its locations are experiencing ongoing demand due to the grant assistance available for this area. Aragon Park is a new development by Easter comprising eight units, of which five have been sold for between £85 and £90 per sq ft and two units are currently under offer, with a remaining unit of 10,800 sq ft available. Buyers include Electric Shop, Deralam Laminates and Rage Motorsports.
Slough Estates and Haywood Industrial Estates recently acquired 39 units at Woodside Industrial Estate, Dunstable, which Savills is letting. The site includes potential development area of which can accommodate a building of up to 150,000 sq ft. And Quantum is a cleared site within the Woodside development where Slough Estates can provide design and build opportunities between 30,000 sq ft and 150,000 sq ft.
According to Lambert Smith Hampton, activity in Dunstable has primarily been concentrated on units below 25,000 sq ft and in excess of 60,000 sq ft, with freehold demand continuing to overshadow leasehold at the smaller end of the market. Despite a broad range of availability, certain sectors are underperforming,
For more information about grants, contact Andy Lewis at Bedfordshire County Council on (01582) 474 067.