With demand unabated for logistics space, what is the outlook for occupiers across the region? Liza Helps investigates.
The East Midlands outperformed the West Midlands in terms of take up in 2016, with around 6.9 million sq ft of Grade A space over 100,000 sq ft being let compared to 5.6 million sq ft in the West Midlands.
“So far in 2017,” says Peter Monks of Colliers International, “take-up across the Midlands as a whole, has been slower than the market had expected, however the East Midlands remains very strong, with continued occupier interest from the likes of XPO, Amazon and a number of other, primarily retail related occupiers with a strong on line presence.”
It is thought that the world’s biggest retailer Alibaba is also looking for some 600,000 sq ft of space in the region from which the Chinese owned mammoth intends to strike out in the UK against the likes of Amazon as the leading e-commerce player in Western Europe. The company has logistics space in the UK through its logistics platform 4PX Express.
According to Colliers International’s latest research at least 2.4 million sq ft has been transacted in the first quarter of 2017 in the region. The majority (69 per cent) of deals were over 100,000 sq ft, with only one deal so far recorded in the 50-100,000 sq ft size band.
In the over 100,000 sq ft size range, there was 1.6 million sq ft transacted in seven deals in the first quarter.
In the largest deal of the year so far, Garden products supplier Gardman took a 413,789 sq ft warehouse at Prologis’ Prologis Apex Park in Daventry. The building, which is scheduled to complete in September 2017, will be Gardman’s new national distribution centre serving retailers and independent garden centres across the UK.
As part of its expansion plans, Yusen Logistics has also taken a pre-let, acquiring a 379,000 sq ft distribution centre at Prologis Park Wellingborough West.
The new building will be the first unit at the 110-acre development site, which has planning permission for a total of 2.2 million sq ft of logistics space.
Infrastructure work started on site earlier this year. Construction of the new building will start in spring 2017 and is expected to complete in early 2018.
The warehouse is designed to achieve a minimum BREEAM ‘very good’ accreditation and the best EPC rating possible for its size.
Burbage Realty and Lambert Smith Hampton acted for Prologis. Louch Shacklock represented Yusen Logistics.
Logistics company CML took Unit 6130, a distribution warehouse at Magna Park in Lutterworth, East Midlands.
The 110,215 sq ft unit will be the firm’s third warehouse at Magna Park, increasing its total retail distribution space at the park by almost 30 per cent.
The new facility will house a purpose built picking structure and space for over 14,000 pallets on a secure 6.5-acre site. The newly refurbished building has 12m eaves, eight dock and two access doors, as well as a secure car park with space for 70 cars and 19 HGVs.
It is thought the new building will be used to support CML and Canute Logistics recently announced joint venture enterprise TouchPoint.
The new service, which was launched at Multimodal 2017, is set to offer retail clients importing, exporting, and e-commerce warehousing solutions combined with distribution.
The facility was previously occupied by Geodis. CML has taken it on a 10-year lease with five year break at a rent of £6 per sq ft. Letting agents were Strutt & Parker and Burbage Realty.
Then there is Conder Development’s DVP118 totalling 118,000 sq ft at Dove Valley Park. The speculative warehouse has been let to modular building manufacturer Tophat Industries, which has taken a 20-year lease at a rent of £5.25 per sq ft. The property has 12m eaves; eight dock and two level access doors and has been built to BREEAM ‘Very Good’ standard. Letting agents were MWRE and BNP Paribas Real Estate.
According to research from GVA big shed occupier demand in the Midlands is increasingly retail focused, particularly the East Midlands, amounting to 54 per cent of all deals, evenly split between retailing and e-commerce.
“Demand during 2017 is expected to remain strong,” says David Willmer of GVA, “Third party logistics companies such as XPO, Wincanton and Kuehne + Nagel all have active live requirements in excess of 200,000 sq ft. We expect internet retailing to further dominate the market this year. Activity from Amazon is likely to continue albeit with a greater focus on mid-size last-mile requirements. Other midrange requirements will continue from component suppliers in the automotive sector.”
Andrew Jackson of Avison Young agrees: “Demand in the East Midlands is remaining steady; the last year was extremely strong and so far this year has seen a steady continuance of that demand – we are tend to find the first part of the year is quieter than the second.”
Lee Charnley, managing director of Thorngrove Land & Property, says: “There is a very strong demand for large distribution warehouses from regional and national occupiers across the whole of the central and east Midlands region but supply is extremely limited.”
His company has submitted a planning application for a massive speculatively developed warehouse on the South Normanton Industrial Estate in
Derbyshire in conjunction with joint venture partners, Richardsons Capital.
The 261,000 sq ft high-bay distribution warehouse, which they intend to develop speculatively, will be known as “Nickel 28”, and has been designed by AEW Architects.
The state of the art warehouse/distribution facility and associated office accommodation, will benefit from a large 50m yard, generous lorry parking facilities, 24 dock loading doors, a secure gatehouse and double stacking entrance road.
Cushman & Wakefield and Commercial Property Partners are letting agents.
It is only with such a short supply of space and such a high and consistent level of demand that developers and funds feel confident enough to build speculatively – even so it is still considered a brave decision.
Jackson notes: “There are reasonable levels of supply in certain size ranges from 175 – 250,000 sq ft but outside that band then availability is more restricted. Indeed if you are looking for units of 100 – 150,000 sq ft in Northampton there is very little available.”
Monks adds: “Supply in the region sits at approximately 4.5 million sq ft, with what some might say comprises an oversupply of units between 150 – 250,000 sq ft, there currently being 12 units available in this size range. Overall supply in the East Midlands for modern warehouse units over 100,000 sq ft is around 3.7 million sq ft split over 18 buildings.”
Currently the largest unit immediately available in the region is the Quantum unit at Magna Park, Lutterworth SEGRO’s 418,000 sq ft ex-Primark facility, which is being marketed by Avison Young and JLL with a quoting rent of £6.25 per sq ft.
While there may be seemingly a lot on the market existing industrial supply in East Midlands has been falling year-on-year and it stands at 10 million sq ft, a 61 per cent drop since 2009. As a result, vacancy rates have also dropped to 4 per cent.
According to Colliers International research findings: “Grade A supply remains severely constrained with those units that are available typically of secondary quality and in some cases no longer fit for purpose. Secondary stock is quickly being snapped up.”
East Midlands is the most supply imbalanced region among small and medium-sized units. The East region has the highest imbalance within the logistics sector.
Jon Ryan Gill of Knight Frank notes: “In terms of buildings available there is about 4.17 million sq ft of space in 23 units.
“Of this about 1.67 million sq ft is new speculatively built space being constructed or about to be completed including Mount Park 314,500 sq ft at Bardon. In terms of take up that is equates to 1.5 months take up at best and that will soon be gone.
“Second hand space totals 2.49 million sq ft in 15 units including the 99p Store unit at Prologis Park Pineham.”
Known as DC372 the facility is on the market through Cushman & Wakefield. It provides 374,132 sq ft of space and has 32 dock and four level access doors as well as 12.5m eaves and a 50kN/sq m floor loading. It has 87 trailer and 250 car parking spaces and a maximum yard depth of 85m.
GVA Research backs up the claim that the supply of modern big sheds has diminished year on year since 2010.
It records that there is currently 4.4 million sq ft available in 22 units across the Midlands as a whole with an additional 10 speculative units under construction totalling almost 2 million sq ft.
David Willmer of GVA, says: “We estimate that there is only around some 6 months of stock currently available in the market based on average take-up rates.
“The overall lack of availability has been exacerbated by the slowdown in speculative development decisions immediately following the referendum and could be an issue in the second half of the year.”
Geoff White, RICS policy manager, North & Midlands, comments: “The shortage of industrial and commercial units is a major issue in the East Midlands and a concern for RICS professionals in the region.”
As in many regions he notes that employment land is being lost to residential schemes to fix the national housing shortage, but this means opportunities for businesses to start, grow and relocate are shrinking.
Alex Verbeek of IDI Gazeley says: “Land with the appropriate land use permission is difficult to find and allocate with the planning authorities. There has perhaps been an oversight and lack of understanding of the rapid changes in the supply chain and how distribution is now being done in the UK driven consumer spending – land use allocation [for commercial space] is not a vote generator while housing is…”
However, there is a bit of light at the end of the tunnel. Simon Lloyd of Cushman & Wakefield says: “In terms of building supply there is not enough; in terms of land supply for development there are a number of opportunities coming forward ensuring that there is a reasonable choice for occupiers for the next three to five years.”
Schemes with planning being actively brought forward include Prologis Park Kettering where developer Prologis has committed to speculatively developing a 156,670 sq ft distribution centre. Designed to achieve a minimum BREEAM ‘very good’ accreditation and the best possible EPC rating for its size, the building will include a rooftop solar installation that will generate 10 per cent of the building’s regulated energy. Completion is expected in the summer of 2017.
Providing around 1.7 million sq ft in total, Prologis Park Kettering is close to Junction 7 of the A14, which links directly to the M1, M6 and A1(M). Burbage Realty and Budworth Hardcastle are acting for Prologis.
The developer is also speculatively developing a 210,000 sq ft unit at Prologis Park Pineham as well as a 275,000 sq ft unit in Milton Keynes and a 115,000 sq ft unit at DIRFT III where the developer has planning permission for 7.86 million sq ft.
In addition there is SEGRO and Roxhill’s six million sq ft rail related scheme East Midlands Gateway.
Warwickshire-based IM Properties with First Industrial can accommodate a 450,000 sq ft plus unit on its 45-acre site off the M1 in Eastwood, Nottingham known as Nottingham 26. Letting agents are Fisher Hargreaves Proctor, Avison Young and Dove Haigh Philips.
Sladen Estates snapped up Prologis’ former 45 acre site in Mansfield and is now promoting Summit Park which could provide up to 900,000 sq ft of space in units from 5,000 – 350,000 sq ft. Letting agents are Commercial Property Partnership, Avison Young and Lambert Smith Hampton.
The SEGRO/Roxhill joint venture has a variety of other sites in the region including its 240-acre Peterborough Gateway located adjacent to junction 17 of the A1(M) motorway. The site has planning consent for 5 million sq ft of industrial buildings, including individual buildings of up to 1.3 million sq ft. Avison Young, Burbage Realty, Bidwells and Barker Storey Matthews are letting agents.
They also have a 65-acre site in Burton Latimer that could accommodate up to 1.2 million sq ft, which is to be known as Kettering Gateway.
Schemes that are making their way through planning include Goodman and Shepherd Group’s proposals for Severn Trent’s 619-acre site at Etwall to be known as the East Midlands Intermodal Park that could provide up to six million sq ft of rail related warehousing in units from 235,000 sq ft to 1 million sq ft. Subject to all approvals it could be up and running by 2018.
The same holds true for the extension to Magna Park Lutterworth where IDI Gazeley has put forward plans for a 590-acre extension on land to the north that could accommodate up to 6 million sq ft. The company has already secured DHL as an occupier for a 1.3 million sq ft facility, however this application is subject to a judicial review.
To the south of the park Barwood and Delancey joint venture DB Symmetry, has put forward proposals for a 200-acre expansion to be known as Symmetry Park that could accommodate a possible 4 million sq ft.
Gladman’s Vertical Park on the site of the former Bevercoates colliery in Nottinghamshire has outline consent for a single facility of 2 million sq ft with a 30m eaves height. Letting agents are Lambert Smith Hampton and Cushman & Wakefield.