A Space Odyssey

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With increasing demand and no let up in the supply of warehousing in London can the east offer respite for occupiers?        

Demand for space across the region remains resilient despite – and to some extent possibly because of – Brexit.

Paul Mussi of Knight Frank explains: “There are three main drivers for London warehouse demand population growth, industrial displacement and e-commerce none of which is impacted by Brexit.”

The population of London is set to rise from 8.1 million in 2011 to top 10 million in 2035, by which time an estimated 50,000 homes will have been built.

Many of these homes will be developed on land once designated for employment uses forcing industrial occupiers to relocate towards the outskirts of London. At the same time e-commerce is set to increase further only compounding the need for more warehousing close to the capital.

Akhtar Alibhai of Colliers says: “Despite uncertainties we are seeing record levels of take-up as occupiers try to future proof their supply chains.”

Any area capable of facilitating last mile deliveries is particularly popular and Ivan Scott of Glenny suggests: “In Enfield alone you could easily drop 500,000 sq ft in the market and it would be taken, such is the demand.”

While this holds true, for most developers acquiring the land to build the space, is still a huge issue.

William Merrett of BNP Paribas Real Estate says: “Land supply within the M25 is scarce.”

Jim O’Connell of Glenny agrees adding: “You have to go quite some way out to get sites of any size especially greenfield sites.”

It is these fundamentals coupled with the scarcity of land that are encouraging developers, investor developers and funds to pay for and clean up brownfield sites, which under any other circumstance might not make economic sense.

The board of Tritax Big Box REIT has found itself, for the first time in that position, going out on what many saw as a limb, to secure the 119-acre former Littlebrook Power Station in Dartford.

Tritax had not previously bought land for development preferring to secure assets on an individual basis through straight acquisition of existing facilities or pre-funding once an asset had secured an occupier.

With increased competition and hardening of yields on investment assets the board took the decision to acquire the site for development.

Charlie Withers of Tritax explains: “The key reason to invest in this site was to invest in a best in class development opportunity that would ultimately provide secure Big Box income at a more attractive yield on cost than purchasing standing Big Box investments.”

According to stock market announcements Tritax paid a total consideration of £65 million (excluding purchaser’s costs) for the freehold for the site, which could accommodate up to 1.7 million sq ft of logistics distribution buildings, including several big box logistics facilities, together with some smaller urban logistics facilities.

In November last year it secured planning permission from Dartford Council for the proposed development of a 450,240 sq ft cross-docked logistics facility with on 28.6-acre plot.

Tritax is targeting a yield on cost on Phase 1 in excess of 6.5 per cent.

The complicated brownfield site has been the object of a major remediation with the first two phases totalling 54-acres now complete and within budget. It had been estimated that site preparation costs would be around £25 million.

To date, a recycling level of over 98 per cent has been achieved across the site, above the 95 per cent target.

 

Demolition

The demolition of Phase 3, which includes the main power station and its associated infrastructure, is continuing and is on track to complete in early 2020. Discussions are now on going with Dartford Borough Council for a separate application for outline planning consent on the balance of the site.

The development on Phase 1 known as The Powerhouse is being brought forward with developer Bericote. The cross docked facility will have 21m eaves, a 50kN/sqm floor loading and three storey headquarter style offices.

It will have 40 dock and 8 level access doors as well as a 65m yard depth. It boasts 180 trailer and 465 car parking space and has three access points to the warehouse. Letting agents are Colliers, DTRE and JLL.

With decent sites few and far between within the M25 it is not surprising to see land prices on the rise. Tritax secured its site, south of the Thames for roughly £550,000 an acre in July 2017.

Daniel Wink of Glenny puts land prices in Thurrock to the north of the Thames at roughly £1.7 million an acre but a report that the City Corporation has secured the former Barking Power Station has suggested that land prices, just that little closer to the centre of London, are at £3.5 million an acre.

Wink says: “It is difficult to say with any certainty what land prices are as it is dependent on the location; there just haven’t been the deals to assess the situation – all we do know is that they have increased considerably over the last 18 months.”

Some developers have looked to secure sites slightly further afield and one of the recent hot spots has been Basildon. Winks says: “There is about 400,000 sq ft of space being developed in Basildon at the moment.”

Specialist speculative warehouse developer Panattoni is redeveloping the former Kongsberg Automotive Plant in the town.

The 115,000 sq ft scheme, called Basildon 115, will be developed as a new headquarters, logistics, and manufacturing facility.

The facility, which has a gross development value of £21m, is due for completion by the end of the year. John Allan of GVA, says: “Larger, new warehousing is much-needed in the area.”

GVA is joint letting agent on the scheme with Knight Frank and JLL.

Another scheme in the town looks to put forward a further 223,00 sq ft of space in three units.

Boxset Basildon by Wrenbridge and Palmer Capital is a £35 million speculative scheme that will see units of 90,000 sq ft, 72,000 sq ft and 61,000 sq ft developed on a 10-acre site by the end of 2019.

Letting agents are Avison Young, Glenny and CBRE.

The largest scheme in the region remains DP World’s London Gateway scheme, which could see up to 9 million sq ft of warehouse space developed in total and accommodate a single unit of 1 million sq ft.

Recent deals have seen SH Pratt Group secure a 108,555 sq ft temperature-controlled warehouse on the scheme that is home to its new business, Halo.

Next door to London Gateway there are plans being put forward for Thames Enterprise Park on the former Coryton Oil Refinery. Just recently a further £8.5 million of investment has been pumped into the site to fund essential land preparation work of 108 acres of the 415-acre site, which will be ready for development in 2020.

 

Redevelopment

The planning application for the redevelopment of the whole of the site is currently with Thurrock Council and will be determined later this year.

Chris Brookhouse, chief executive of Thames Enterprise Park, said: “This investment is an important step in the development of Thames Enterprise Park.

“Outline planning approval is expected to be received in the middle of 2019 for the entire site, and we expect to be on track to welcome our first operators on site in late 2020.”

A large part of the proposed development is to be given over to a Food Hub bringing processing, packaging, storage and distribution. A range of innovative – warehouses is proposed with high levels of automation.

Other schemes being brought forward along the A13 corridor are considerably smaller though none the less important these include a 25-acre site in Rainham that could accommodate up to 400,00 sq ft through Wrenbridge

The scheme is set to be delivered in two to three phases over the next five years and will have an end value of £80 million.

Letting agents are Avison Young, CBRE and Glenny.

There are a couple of sites in Purfleet that could accommodate up to 750,000 sq ft SEGRO Logistics Park Purfleet and Goodman’s Purfleet Commercial Park.

SEGRO has its 20-acre SEGRO Logistics Park Purfleet, where it is building two units speculatively. The two units will be 238,205 sq ft and 126,725 sq ft and will be built to the highest specification offering innovative and sustainable features.

The warehouses will have 12m eaves height, with 18m at the apex and will have first and second floor air-conditioned offices. There will be large yards up to 83m with ample HGV and parking spaces. Joint letting agents are JLL, Glenny and Savills.

Close by Goodman’s Purfleet Commercial Park could see up to 340,000 sq ft developed on a 15 acre site on a build-to-suit basis.

There are a number of units in the region immediately available these include Logicor’s Logic233@Dagenham, the largest available logistics unit within the M25, appointing DTRE, JLL and Savills as joint letting agents.

The warehouse space, totalling 232,965 sq ft is strategically located on the A13 corridor, adjacent to the former Barking Power Station

It is available to let from May 2019. The warehouse space benefits from Grade A specification and unrestricted B8 use, with 12m clear internal height, lighting throughout, existing capacity for 6,840 pallets and a total potential racking capacity of 24,300-32,400 pallets.

In addition to the fully refurbished office space, the site has a 50m-yard depth, 20 dock levellers, 3 level access doors and 49 5GV/trailer parking spaces, with 144 car parking spaces.

Mike Best of Logicor, says: “The building is a unique and as such, we have already received a great deal of interest.”

Other buildings immediately available include GT110 in Thurrock totalling 110,771 sq ft with a clear eaves height of 10.5m, 11 dock and 2 level access doors and a 40m deep yard to the side elevation of the warehouse. Internally the unit has an FM2 floor level with a loading capacity of 50 kN/sq m. Letting agents are DTRE and Savills.

SEGRO has Unit 2 at its SEGRO Park Rainham scheme totalling 70,558 sq ft available through joint letting agents Glenny, Knight Frank and LSH.

With a dearth of supply and sustained demand it is not surprising to see rent levels stalwart. Toby Green of Savills says: “Strong occupier demand and the lack of stock in London continues to drive rental growth across the region.”

However, BNP’s Merrett says: “Clearly, rents vary according to age, size, condition and location specifics of each building but as a general comment we are seeing that rents in east London represent good value by comparison with locations to the north, west and south of the city.”

However that is not to say they have not increased in the past few years.

He continues: “Rents in east London of units of over 50,000 sq ft have increased by as much as 30 per cent over the past three years.”

One of the highest rents achieved saw DPD secure a parcel hub facility at £19 per sq ft at although one must point out that this was a very bespoke deal.

 

Double figures

Alibhai notes: “Rents are hitting double figures for the first time and while there are some deals being secured at £9 – 9.50 per sq ft many people see rents hitting £10 per sq ft by the end of the year.”

Ivan Scott of Glenny points out that Farmdrop, an online grocer, secured a 10-year lease on a 24,298 sq ft warehouse at Aberdeen Standard Investments and Graftongate’s Enfield Distribution Park at a rent of £13.75 per sq ft.

He says: “Smaller units of say 3,500 sq ft are up to £17.25 in Enfield with one of the largest units of 84,000 sq ft having a quoting rent of £13.50 per sq ft.”

Pundits are pointing to a level of £14 per sq ft in Enfield by the end of the year, which may not be far fetched. Scott says when they let the Unit 5 Enfield Distribution Park, “we did not formally quote a rent on the property, while it was under construction, but mid-build we thought it would go for roughly £12 – 12.50 per sq ft.

However, the market sentiment between December 2017 and June 2018, when the property completed, changed dramatically and we let the property just after practical completion for £13.75 per sq ft. It set a new level for rent in this location – only a few years previously it would have been let at £9.50 per sq ft.

While rents may go up occupiers can at least be safe I the knowledge that lease terms in general have stayed relatively unchanged.

Merrett says: “Lease lengths haven’t moved out vastly in this cycle. On new-build, modern units Landlords are typically achieving 15 years term certain, however break options are often conceded at year 10 particularly for companies with a strong covenant strength.”

 

This article first appeared in Logistics Manager, March 2019.

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