It’s not a pretty picture but the forecast for occupiers in the North West is that rents are on the rise. In a recent report Brian Birtwistle of DTZ Debenham Tie Leung says: “Occupier demand for industrial, warehousing and distribution space in key locations across the North West has been increasing during the last 12 months. This, combined with other factors, has created the environment for industrial rents in the region to start growing.”
Steve Moriarty of M3 points to increasing land values and build costs as prime suspects. “The ongoing increase in land values and also building costs generally relating to industrial and warehousing schemes are now starting to push up rental levels across the entire north of England region.
“An example of this has been a recent acquisition by Gazeley of distribution land at Axis, near Liverpool where the acreage land price has risen above £300,000 and this, inevitably, will push up quoting rents at or above £4.50 per sq ft for larger buildings.
“However, schemes that are already built or under way do, therefore, have a cost advantage over land, which is yet to be developed and at Rosemound/Royal London’s Pioneer Point scheme at Ellesmere Port, for the right lease terms, the rental level can still be driven down below £4 per sq ft.
Pioneer Point totals 625,000 sq ft on a 30-acre site. This cross-dock facility boasts 62 dock levellers, 18 m eaves and two 55m yards, which means that the building can easily be subdivided. It is located between Junctions 7 and 8 of the M53 motorway on the 87-acre Pioneer Business Park, Ellesmere Port. It is being marketed by M3, DGi Davis George and Lamonts.
Martin Mellor of Langtree Group says: “Poor land supply in the North West is a catalyst for increasing land values in the region.”
Indeed, says Birtwistle: “While there is a steady stream of land coming onto the market in the region, it may not be suitable for all north west occupiers. For example, some land may have restrictions on use, for example it might be suitable for a technology or business park rather than for a distribution facility. Shortage of supply of land and developments that are well-located and meet occupier requirements will increase prices.”
And this will be further exacerbated by news from NAI Fuller Peiser that planners continue to resist B8 development. According to its latest research one in four Local Planning Authorities (LPAs) restrict the development of logistics property. This may be largely due to the outdated perception that there is a lower quality of skills required for logistics jobs.
Sara-Jane Preston of NAI Fuller Peiser says: “Even though the myth that a shed is run by two men and a dog is long gone, planners don’t agree. These retailers who have requirements of 300,000 – 400,000 sq ft will be able to employ up to and above 400 jobs – that’s one per 1,000 sq ft from the MD to the man who sweeps the floor. There is so much more technology involved now. It is not just white collar and blue collar in the warehouse; it’s the full scale of employees.”
Perhaps the best measure of skills is earnings. The Annual Survey of Hours and Earnings shows that average gross weekly earnings for logistics are comfortably above the UK average and, most notably, above light industrial employment.
With regards to build costs, Frazer Darrington of Severfield Reeves Structures says steel prices have risen by around five per cent over the past two to three years and are likely to stay ahead of inflation.
Only this month Corus announced a price hike of £25 per tonne for structural steel – the third increase this year. The announcement coincided with the publication of a UK structural steel market development report from analyst Market & Business Development forecasting a 10 per cent real term growth over the next five years.
Birtwistle agrees, adding: “Another key factor is the revised part L UK Building Regulations, which have just come into force. The regulations place greater emphasis on the energy efficiency of buildings and explicitly relate to reducing carbon dioxide emissions aiming for a 25 per cent improvement on the previous Part L targets.
“The new regulations affect all areas of the construction and property industry from builders, owners, tenants, designers, and manufacturers to building control bodies and maintenance contractors. All new buildings will have to meet a minimum energy performance requirement and will be issued with a certificate detailing their energy performance, allowing comparisons to be made between different buildings according to their energy profile. This will have a direct impact on developer build costs and potentially on rental levels in the region.”
In addition to the need to comply with more stringent building regulations, says Andrew Pexton of GVA Grimley, [buildings] “need to get a high as possible BREEAM rating from the building elements. An ever increasing number of occupiers have environmental policies which encompass the need for an environmentally friendly building with schemes such as rainwater harvesting, the use of low pollutant/’low global warming potential materials’ etc. Developers have accepted the need for schemes to be more environmentally friendly, and as the benefit is passed onto the occupier, the latter of whom will usually pay for it.
If those points were not enough to worry about there is then the problem of labour shortages adds Pexton which has affected prices/labour rates. All these extra costs will eventually be born by the occupier.
It’s not all bad news. Sara Jane Preston of NAI Fuller Peiser says: “The increase in rents is only at the small and mid range not in big sheds which are a bit more bespoke. In terms of buildings up to about 75,000 sq ft, the freehold market was running away with itself; three years ago they would be sold at £55 per sq ft now that’s £85 per sq ft. In fact, says Preston, Apollo Scientific have bought 11,000 sq ft off plan at Parkway Denton for a freehold price of £87.50 per sq ft. Two further units extending to 2,900 sq ft have also been sold for a freehold price of £90 per sq ft. Owner-occupiers liked to be in control and as fast as the developers could build they were selling. However, the freehold market seems to have hit its ceiling and has slowed down. Now we are seeing the leasehold market coming back. Centenary Park completed by Easter Developments and funded by the Duchy of Lancaster will only consider leases. Two are now let and one is in solicitor’s hands.
Following this news, NAI Fuller Peiser raised the quoting rents to £5.75 and £5.95 per sq ft for three units remaining units ranging from 18,000 sq ft to 53,000 sq ft.
“Rents were about £5.25-5.50 per sq ft now deals have been done at £5.75 per sq ft.” Whitbread have recently taken 25,000 sq ft at Earl Estates’ Kings Park, Trafford Park at a rental of £5.75 per sq ft on a 10-year lease. Letting agents were Savills and DTZ.
“When you look at bigger end of the scale from 200,000 plus for example Legal & General’s Fusion at Trafford Park totalling 208,000 sq ft is quoting £4.75 per sq ft.”
There is also Big Sam, which is being developed by Arlington in a joint venture with Barwood. It totals 270,000 sq ft and is cross-docked with 12 dock levellers on each side. It boasts an eaves height of 14m, with a 50m yard to one side and a 40m one on the other side. This is also available at a rent of £4.75 sq ft through Savills.
Gazeley’s two units of 480,000 and 260,000 are again quoting in the region of £4.75 per sq ft as is Rosemound at Pioneer Point and Gladman with it’s Vault scheme. The developer has also been given the green light to build a 361,205 sq ft speculative distribution warehouse near Runcorn, Cheshire.
Known as G-Space 360, work is due to start on site in October on a 20.74 acre site at Manor Park on the A558, close to Junction 11 of the M56, which it acquired from national regeneration agency English Partnerships.
Gladman Developments won planning permission for one single distribution and industrial warehouse facility which is expected to have an end development value of more than £20 million and could provide up to 400 new jobs.
Working with Lambert Smith Hampton’s Manchester office as its sole retained agent, Gladman Developments is targeting occupiers among retailers and logistics companies.
The reason why the larger building can be offered at lower rents hangs on two points: firstly, there are economies of scale; secondly, developers who can buy in bulk and pre-order will be able to provide a more competitive price.
Pexton says there is no longer a quantum paid for large sites if they can be developed for big sheds. There can even be a perceived premium as the build costs are significantly lower for the larger sheds of over 150,000 sq ft.
Moriarty says: “With land prices in development hot spots such as Doncaster to the east of the Pennines rising as high as £350,000 per acre, there is an increasing chance of potential occupiers refocusing westward along of the M62 corridor to take advantage of building availability where terms can be secured at £4 per sq ft or just below. Pioneer Point totals 60,385 sq m (650,000 sq ft) and there is, therefore, a good chance that Footloose Occupiers will consider schemes on either side of the Pennines and the most competitive transactions are likely to be found in locations such as Ellesmere Port and Liverpool.”
Based on this premise, developers in a position to go forward with developments are doing so. There seems to be a perceived need for building between 200,000 – 400,000 sq ft as well as smaller units sub 75,000 sq ft.
To this end, Slough Estates is pushing forward with development at its 200-acre Heywood Distribution Park. Slough’s Kevin O’Connor says that during the year the company has achieved a variety of lettings from sub 5,000 to 150,000 sq ft. “The key is flexibility as short as one month first then let it again for five years. This flexible approach has helped us fill the void and provide customers with space they require.
“We have also secured planning consent for 600,000 sq ft with a single unit of 400,000 sq ft and we are looking to pre-let.” The developer is also on site with a range of 12 buildings from 1,867 sq ft to 5,746 sq ft while there is yet another site with two buildings one of 31,183 sq ft pre let to Direct UK and the other 18,213 sq ft spec built. We are quoting rents for the brand new 100,000 sq ft M2 unit at £5.25 per sq ft and others from £4 – £5.50 per sq ft.” Joint letting agents are King Sturge and Savills.
Shepborough Developments has two units at ISIS, Agecroft Commerce Park. The two warehouse units known as Atlas and Zeus comprise 60,000 sq ft and 70,000 sq ft respectively, and are available to purchase at a cost of £70 per sq ft, or leasehold for £5 per sq ft. The units have generous eaves heights of nine metres and ten metres, dock level doors, secure yards and two- storey office accommodation. They will be available in mid-September.
Paul Cook of King Sturge, says: “There is a real shortage of good quality buildings of this size range, which are available to purchase and fit for immediate occupation. We are therefore experiencing strong demand, particularly from occupiers who usually look at locations such as Trafford Park or Warrington where there are no such buildings.”
Meanwhile Pochin Developments has started to speculatively build a 350,000 sq ft unit at its development Midpoint 18, Middlewich, Cheshire.
Pochin’s has committed to delivering the scheme following an increase in occupier requirements ranging 275,000 to 375,000 sq ft, as Jim Nicholson, director at Pochin Developments says: “Developers must respond to current market conditions and cater to the larger requirements of distribution companies. We are delighted to be doing that with the new unit, which will strengthen Midpoint 18’s standing as a true distribution destination.”
A number of other units are currently under construction at the site including the 4,180 sq m (45,000 sq ft) Valley Court, a speculative industrial scheme comprising light industrial and distribution units. Verity Court, a 1,208 sq m (13,000sq ft) speculative scheme of small office units has also recently been completed. Lamonts and Matthews and Goodman are joint agents at the site.
Kurt Mather of Brixton says: “We are currently in the process of demolishing the former Carborundum site which will provide around 171,000 sq ft of new industrial and distribution units ranging from 4,564 – 35,919 sq ft which is planned to be available in the third quarter of 2007.
“Electric Park has planning for design and build opportunities of either a single warehouse of 109,805 sq ft or two units of 74,242 sq ft and 47,199 sq ft, available on a freehold or leasehold basis.
“In addition to this, the Altai building at Trafford Point is to be upgraded through refurbishment, bringing a 120,800 sq ft distribution facility, set in 9.25 acres.”
As well as that Sara Jane Preston of NAI Fuller Peiser says that it won’t be long before Development Securities, the new owner of the former Vimto factory at Stonecross Park, Golborne, near Wigan, finishes redeveloping the unit.
She says: “The property is perfect for a regional distribution centre or satellite warehousing as it is well-located at Stonecross Park at junction 23 of the M6 and East Lancs Road (A580), which is a prime industrial/ distribution and logistics location in the North West. Our research into the Working Time Directive has highlighted the need for well-located distributed facilities close to urban areas such as this”.
The 155,000 sq ft unit on 7.65 acres was sold by soft-drinks firm Nichols plc for £6.125m. Nichols plc were represented by joint agents NAI Fuller Peiser and Davis George, Walker Sutton acted for Nichols plc as their corporate advisers. Development Securities was unrepresented but has retained NAI Fuller Peiser’s Manchester office.