Bucking the trend

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A series of mega e-commerce related warehouse deals looks to be heralding a renaissance for the region. Liza Helps reports.

According to Colliers’ Spring 2019 Industrial & Logistics Barometer the region looks to be bucking the trend in terms of take-up so far this year.

The report shows that national ‘Big Box’ take-up (100,000+ sq ft) slowed to 4.9 million sq ft in the first quarter of 2019 – the lowest first quarter reading since 2013. But for Yorkshire it was a different story with a number of deals being signed off and more in the offing including one of the biggest deals so far concluded nationally.

An as-yet-to-be-named on-line retailer has agreed a 731,000 sq ft pre-let at Verdion’s 800-acre iPort scheme in Doncaster.

The deal will see the launch of the 300-acre Phase 2, which covers the southern part of iPort and has capacity for a further 3 million sq ft of developable logistics space. Letting agents are Gent Visick, Colliers International and CBRE.

The region did really well last year too with Savills recording take-up levels reaching new highs as supplies continue to fall.

Available supply sat at 3.75 million sq ft across 19 separate units at the beginning of 2019, representing a 35 per cent fall from 2017. At the same time, 2018 saw the strongest levels of demand ever recorded.

Take-up reached 9.48 million sq ft through 25 separate deals, a 562 per cent increase from 2017 and a 68.6 per cent increase from the previous high-water mark of 5.62 million sq ft in 2014.

According to Lambert Smith Hampton’s Industrial & Logistic Market 2019 report the biggest active sector was with online retailers, which accounted for 51 per cent of the total take-up of big boxes across the region.

Online retailer deals in the past year include garden and homeware e-tailer MH Star securing a 15-year lease on Clearbell Property Partners’ 123,000 sq ft Aspect Warehouse on West Moor Park in Doncaster; online retail giant ASOS signing a 10-year lease to occupy a 190,000 sq ft distribution centre owned by Property Income Trust for Charities (PITCH), a fund managed by Mayfair Capital also on West Moor Park and logistics giant Clipper securing Logicor’s Sheffield 615 building for a contract with online clothing retailer PrettyLittleThing.Com.

These deals were nothing, however, compared to two Amazon deals in Darlington and Durham, which occurred towards the end of 2018.

The online giant secured a 1.99 million sq ft pre-let at Citrus Group’s Integra 61 scheme in Durham, which was forward funded by Tritax to the tune of £147.3 million.

The development will comprise a new prime, state-of-the art, purpose-built facility, with a gross internal floor area of 1,992,061 sq ft inclusive of three structural mezzanine floors and a low site cover of around 32 per cent.

The high specification facility will be cross-docked with an eaves height of over 20 metres.

Upon practical completion, due in summer 2020, Amazon will take up a new 20-year lease, subject to five yearly upward only rent reviews.

DTRE represented the Company, CBRE represented the occupier and Avison Young represented the Citrus Group.

A further pre-let in Darlington saw the company take a 1.5 million sq ft at db symmetry’s 77-acre Symmetry Park Darlington scheme. Tritax is also providing £120.7 million of forward funding on this deal.

The development will comprise a cross-docked facility with 360-degree circulation, an eaves height of 18 metres and low site cover of approximately 32 per cent. The new prime facility will be constructed to a high specification with a gross internal floor area of 1,508,367 sq ft.

The ground floor will extend to around 542,060 sq ft surmounted by two structural mezzanine floors.

Upon practical completion of the construction, targeted for summer 2019, the property will be leased on a new 20-year lease, subject to five yearly upward only rent reviews.

So what is making the region so attractive to the e-commerce sector in particular? For Chris Hartnell of Carter Jonas the answer is self-evident: “These types of company are looking at life more strategically.”

Andrew Dickman of db symmetry says: “There is evidence of a geographical shift with occupiers looking to increase their presence in the north where there is more labour readily available across a variety of wage and skills levels, and access to a wider consumer market.”

Bjorn Hobart of Tritax Big Box explains further: “High quality logistics occupiers are increasingly recognising the North-East as an important UK distribution location seeking to capitalise from the region’s excellent transport infrastructure including motorway connectivity, the close proximity to the cargo ports along with the air access broad, as well as its appropriately skilled and flexible labour supply.

“Demand for these new, large, high specification Big Box facilities remains strong as many retailers still seek to right size for e-commerce. The continuing growth in online sales, combined with consumers’ unrelenting desire for ever-faster delivery and convenience, suggests that such portfolio engineering will continue to drive future take-up for some time.

“As at the end of December 2018, UK online sales represented 18 per cent of total annual retail sales and by 2022 it is expected to grow to 26 per cent. These assets are not only crucial to logistics operators in terms of fulfilling ever increasing e-commerce sales, but also for handling the volume and complexity of customers returns.”

John Clements of Verdion says: “South Yorkshire especially is a very strong location for e-commerce. It has very similar transport connections and drive times as the Midlands, but tends to offer greater value for money.

“For many occupiers, being closer to the East Coast ports is increasingly important and quicker access to cities in the north of England is an advantage.”

For Dave Cato of CBRE, it’s the demographics of the region that is the main driver behind the recent shift. “There is a good supply of skilled labour with wages below the national average in addition to that though regional cities are re-inventing themselves, the universities are thriving with a focus on technology and engineering and the population is growing.”

Andrew Gent of Gent Visick adds: “It’s not just a labour issue; the region has two other important considerations a good supply of power and good levels of consented land in most places.”

Richard Harris of JLL notes: “Most local authorities [in the region]are going through a plan review looking at the next allocations of employment land and it seems in the medium to long term there will be plenty of opportunities coming forward.”

However, that is not to say there are not pinch points now. Gent says: “There is a distinct shortage of land on the M62 corridor.” And Harris adds: “There is not much consented land in Leeds at present that could take large footprint buildings.”

The story is a little different in the North East with recent planning consents and applications including Highgrove Group gaining approval for a development of up to 2.5 million sq ft on a 90-acre site in Gateshead to be known as Follingsby Max. Fully serviced plots are ready for development through joint letting agents Colliers and Ashley Smith.

Over in Newton Aycliffe, Richardson Barberry – a joint venture between Barberry Development and Richardson Capital – is submitting an application for a 1.8 million sq ft scheme for the 116-acre Forrest Park site. The proposals include a range of office, industrial and distribution units varying in size from 30,000 sq ft to 500,000 sq ft.

Canmoor is pushing forward Dynamo Park in Stockton with build-to-suit opportunities from 35 – 462,000 sq ft. Joint letting agents are HTA and Cushman & Wakefield.

It is probably just as well there are plenty of sites in the North East says Richard Scott of Cushman & Wakefield: ‘as there is no sign of any meaningful speculative development at the moment anything large scale will have to be built to suit or pre-let’.

Speculative development is more prevalent in Yorkshire where Gazeley has a just Pc’d a 278,000 sq ft warehouse at G.Park Doncaster and Verdion has speculatively developed units of 195,000 sq ft, 119,060 sq ft and 58,879 sq ft currently ready for occupation. Sladen Estates has two units at Nimbus Park totalling 106,000 sq ft and 164,000 sq ft.

Supply levels of immediately available buildings are still tight and Ed Norris of CPP says: “Looking at the five year average take-up for units over 100,000 sq ft plus we think there is less than nine months of supply.”

The supply demand dynamic is in effect pushing both land prices and thereafter rent levels forward across the board. Scott says: “We expect rent levels to push £6 per sq ft for build to suit [in the North East]in the next 12 – 18 months rents are already at £5.75 per sq ft.”

In Yorkshire, headline rents for mid-box units are already hitting £6.25 per sq ft in areas such as Leeds which, says Gent “is pushing it out some when only a couple of years ago the rents would have been £4.75 per sq ft”.

“Larger units,” says Cato, “are around £5.75 per sq ft but we believe £6 per sq ft is breakable on Grade A units.”

 

This article first appeared in Logistics Manager, May 2019.

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