With supply tight and land for new development tighter what is the outlook for occupiers seeking space in the West Midlands? Liza Helps reports.
Availability of warehouse units over 100,000 sq ft reached a critical low in the third quarter of 2016 when supply stood at just 2.21 million sq ft, research by Savills reveals.
Given the fact that the West Midlands has the highest occupier demand of any region in the UK, developers have responded accordingly over the past year and currently supply at the beginning of 2018 is 5.5 million sq ft with 3.97 million sq ft across 27 units over 50,000 sq ft immediately available and a further 1.41 million sq ft available in units under construction.
“It certainly sounds good but actually reflects just a year’s worth of take-up,” says James Clements of Knight Frank.
Developer dbSymmetry is currently pushing through a planning application for a 1.9 million sq ft scheme for a site in Rugby and Jonathan Wallis, development director with the developer, notes: “From the amount of interest we have had before we have even got planning is a good indication for the mismatch between supply and demand in the area.”
Indeed, while developers have responded to the shortfall in the last 12 months, Grade A stock levels across the Midlands according to the latest research from Colliers have ‘now diminished to around nine months supply with existing sheds supply at circa 9 million sq ft – 65 per cent below the 2009 levels’.
“The market is tight,” says Robert Rae of Avison Young. Ranjit Gill of Savills agrees. “There is a lack of supply and that remains the case across the board from 5,000 sq ft to 500,000 sq ft – there is just not a lot around and that is not changing in the short term.”
That being said there is space available, says Simon Norton of Colliers, “but it is limited and what there is, is going to go very quickly”.
Simon Lloyd of Cushman & Wakefield maintains that if as an occupier you can be footloose “there is a reasonable choice” especially for the larger 100,000 sq ft plus units.
Gill explains: “The larger units are available across the region and if as an occupier you can be footloose there is a good choice but if an occupier needs a specific location choice is going to be more difficult.”
Savills latest Big Box research notes that the proportion of Grade A units on the market has increased in line with demand and now stands at 2.5 million sq ft, accounting for 57 per cent of all supply, up from just 16 per cent of supply two years ago.
However, given that the average size deal in 2017 was 277,000 sq ft there remains an imbalance in supply by size range. There are just five units on the market over 200,000 sq ft, accounting for 19 per cent of supply, and just two units over 300,000 sq ft.
These include the 372,000 sq ft M6DC warehouse in Cannock, which is being brought forward by Exeter Property Group and Graftongate. The facility has a 15m clear internal height, 48 dock and eight level access doors as well as 51.5m yards, 74 HGV and 310 car parking spaces. Letting agents are DTRE and GVA.
There is also M&G Real Estate, Rigby Group and Evander Properties’ 340,859 sq ft warehouse at Imperial Park in Coventry. The warehouse is one of three units speculatively developed in 2017. The smaller unit of around 60,000 sq ft was let prior to practical completion to Innovare Systems, while a further unit of 169,306 sq ft remains available.
M&G Real Estate acquired the 29-acre Imperial Park site in 2016 and has committed over £50 million to the development.
The 340,859 sq ft facility known as Unit 1 has 34 dock and four level access doors as well as a 55m secure service yard.
It has a 50kn/sqm floor loading, 15.22m eaves height as well as two-storey office totalling more than 9,000 sq ft as well as a further two-storey hub office of 4,000 sq ft.
It also has 390 car parking spaces. Joint letting agents are MWRE and Colliers.
Close to Coventry in Middlemarch, Stoford has Carbon 207. The 207,340 sq ft fully cross-docked facility has 12.5m eaves, 25 dock and three level access doors as well as 256 car and 23 trailer parking spaces. It has two-storey offices and benefits from a hub office and separate gate house.
The £23.5 million scheme is being developed in conjunction with property fund Blackrock. Letting agents are CBRE and Moriarty & Co.
Developers are looking to build bigger units to tap this demand but naturally they are cautious – the majority of units over 200,000 sq ft have tended to be design and build as in most cases the occupiers are looking for a degree of bespoke design.
According to Savills’ Big Shed Briefing, unlike the national market, the level of build to suit in the West Midlands increased in 2017 and of the 5.86 million sq ft transacted over 2017 45 per cent was classified as build to suit, compared to the long-term average of 32 per cent.
That said, Prologis has started work on a speculative basis at its recently acquired 16-acre site next to Birmingham Business Park, to be known as Prologis Park Birmingham Interchange.
The park is located close to Junction 6 of the M42 motorway and less than three miles from Birmingham International railway station and airport. Planning permission for a total of 310,000 sq ft is in place for two individual units one of 233,025 sq ft and one of 76,975 sq ft. Practical completion is expected in the fourth quarter of the year. Letting agents are Savills and Burbage Realty.
The larger unit will benefit from 15m eaves, 23 dock and four level access doors a 50kn/sqm floor loading, 54 HGV and 150 car parking spaces as well as a minimum level ‘Very Good’ BREEAM.
The largest speculative development in the region has to be First Panattoni’s 450,000 sq ft warehouse at Four Ashes in Wolverhampton. The new kid on the block, an amalgamation of UK developer First Industrial and European heavyweight industrial developer Panattoni, bought the 25-acre site from Bericote and is due to announce the speculative development as part of a wider three million sq ft programme shortly.
There are a number of warehouses between 100,000 sq ft and 200,000 sq ft on the market but scattered throughout the region. Developers have been considering where they build speculatively and have tried to ensure that there is little or no competition in terms of size or location for their product.
Stoford and Liberty Property Trust are going ahead with a 102,000 sq ft warehouse as one of three units at the £38 million Liberty Park complex in Lichfield in Staffordshire. The units will be 102,000 sq ft, 31,500 sq ft and 27,000 sq ft respectively. Letting agents are CBRE and Avison Young.
Canmoor and Aviva have speculatively developed a 142,000 sq ft unit known as Jupiter in Cannock. It has 12.5m eaves as well as 12 dock and three level access doors. Letting agents are JLL and Cushman & Wakefield.
There is also a 153,000 sq ft unit in Cannock being built by Opus Land and Bridges on a scheme known as Conneqt. The warehouse to be known as Alpha has 12 m eaves as well as 14 dock and two level access doors. It has a yard depth of 50 – 112m and is capable of providing 72 trailer parking spaces and up to 290 car parking spaces on a 7.75 acre secure site. The two storey office totals 15,467 sq ft. Letting agents are Knight Frank, JLL and Bulleys.
In Stoke LondonMetric is developing a 140,103 sq ft unit at Campbell Road. The warehouse has 12m eaves, a 50m yard as well as 12 dock and two level access doors. It has 43 HGV and 144 car parking spaces and fully fitted offices. Letting agents are Avison Young and CBRE.
As well as new Grade A stock there are a number of second hand and refurbished buildings on the market; the largest being the former Toys R Us warehouse in Coventry.
Located at Cross Point, the unit, now the largest single building available in the UK, comprises 685,892 sq ft and benefits from 16.2m eaves, 120 doors on three elevations, fully fitted to include heating, lighting, sprinklers, high bay racking/mezzanine and office accommodation. Sole letting agent is Avison Young.
Not surprisingly, Rae notes there has been a lot of interest for the property due to its sheer size and the fact that it can be extended by a further 120,000 sq ft. The facility sits on a 40-acre site and is available at a rent of £5.95 per sq ft.
Prologis has a refurbished unit on the market – DC2 at Prologis Park Stafford. The 128,830 sq ft warehouse was formerly let to WWRD, which owns and operates Waterford Crystal, Wedgwood and Royal Doulton, in 2010 on a 15-year lease at £5.25 per sq ft. Following a relocation of WWRD to a new build to suit facility at Prologis Park Sideway, DC2 is back on the market having undergone a significant refurbishment. The facility is fully fitted with heating, sprinklers and upgraded LED lighting. It has two yards of 35.5m and 30m deep as well as 11 dock and two 2 double height level loading doors. It has 12m eaves and 25 HGV spaces and 123 car parking spaces. Letting agents are JLL and MWRE.
Alan Sarjant of developer Prologis says that Prologis, like many developers, is keen to secure new sites but “it is an incredibly tight land market especially round Birmingham which is tightly hemmed in by greenbelt”.
Clements says: “Developers are desperate for sites and there is a lot of competition whenever anything comes up from plots of 5-acres upwards.”
Prologis has just missed out on being appointed preferred developer for the largest chunk of greenbelt land to come on the market for a decade – Birmingham Council’s 175-acre Peddimore site. The council had a short list of four developers – Prologis, Peel Logistics, Bericote and IM Properties. It recently selected IM Properties to bring forward the site, which could accommodate up to 3 million sq ft of industrial and manufacturing space.
Peddimore will be developed in two phases with IM Properties developing Phase 1, totalling 91-acres, leaving phase 2 in the council’s ownership.
Sarjant says: “We are not seeing brownfield sites of any scale anymore and the smaller ones tend to go to alternative uses.”
Prologis is bringing forward one of the last brownfield sites in the region the 30-acre site at Hams Hall where it has just secured planning for 887,000 sq ft. Known as Prologis Park Hams Hall, the new scheme has planning for four units form 85,00 sq ft to 415,000 sq ft.
Construction either through build-to-suit or speculative development is due to start in the Autumn. Letting agents are JLL, Savills and Cushman & Wakefield.
Sarjant warns: “There is a huge shortfall of employment land, on a five-year basis – it is bad; on a 20-year one it is critical.
“Basically all that is left is greenbelt land and that is a political hot potato.”
Wallis adds: “The market is desperately short of product and it shows as a failure of the system and the market that there is such a dearth of supply.
“The biggest single issue the local authorities have been concentrating on is housing growth to the detriment of employment growth – only now are they starting to realise they have areal issue but it takes time to address.”
With land in such demand it is not surprising that land prices are moving forward Rae notes: “Land prices were around £500,000 an acre back in the day then dropped to around £350,000 and now they are back up to the high £600,000s.” (It is thought Prologis paid up to £675,000 an acre for its site at Birmingham Business Park.)
“With land prices moving so are rent levels though not as quickly as they have done in the past. Sarjant says: “Because of the shortage of supply we expect to see rents pushing £7 per sq ft in the near future on prime sites with buildings under 100,000 sq ft with high office content.”
A rent of £7 per sq ft has already been achieved on a small letting in Banbury and the majority of agents and developers expect to see that level replicated across the region.
David Willmer of GVA says: “Headline rents are constant with new builds in Staffordshire around £6.25 per sq ft rising to £6.50 – £6.75 per sq ft in Birmingham and the Golden Triangle.”
Norton says that for the smaller stock (sub 80,000 sq ft) rents have set a new benchmark with some looking for headline rents over £7.50 per sq ft close to Birmingham.
This article first appeared in Logistics Manager, April 2018