Liza Helps reports on some of the deals of the year and what they meant for the logistics warehouse market in 2018.
There were an awful lot of deals last year, but a few stood out and made us think or reassess our previous stance. Here are some of the ones we felt needed a closer look.
Unit 5, Enfield Distribution Park
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. Joint agents were Glenny, JLL and DTRE.
For Ivan Scott of Glenny this deal stood out, not just because he was involved in the deal, but because it typified so many aspects of the new logistics market.
“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.
“It was a solid deal there for someone who wanted to be in an urban location.”
Farmdrop is a relatively new business with not much of a track record, but it is typical of the new breed of technologically based start up e-tailers changing the way we shop.
It is an online food delivery company that distributes foods to consumers that is sourced from local farmers and fishermen. The company provides farm-to-table foods and fresh fish for consumers in the London, Bristol and Bath areas.
Online grocery is the next battlefield for the consumer pound. According to food and grocery research organisation IGD, the UK food and grocery market is forecast to grow by 14.8 per cent to 2023, giving it a value of £218.5 billion.
Growth is predicted across all major grocery channels, with online and discount retailers set to account for over half of the increase in market value to 2023.
While discounters will achieve the biggest cash gain in sales to 2023 (30 per cent of the total) as they benefit from further store openings and format development, it is online grocery that will remain the fastest growing channel with growth expected to hit 52 per cent.
According to IGD, smaller and more recent channel entrants will drive growth as they scale up their operations and target emerging shopper needs. Simon Wainwright, Director of Insight at IGD says: “Growth is increasingly being driven by recent entrants to the channel and more delivery options.”
The UK is forecast to become the second largest online grocery market worldwide after China by next year. It is no wonder that Amazon is set to step up its game in this sphere in 2019.
But back to Farmdrop, originally set up as a click and collect venture the company opted to start door to door delivery and last year took the space in Enfield – with the backdrop of what is happening in grocery retailing and the fact that Farmdrop has secured considerable funding for expansion from some fairly big hitters in the new technology world – meant that the landlords felt comfortable to proceed with the letting on a 10-year lease basis.
With the new London hub, the company is looking to double the number of households it delivers to, initially in the Southeast. Logicor 615, Sheffield
3PL Clipper Logistics took Logicor’s second hand 615,000 sq ft warehouse in Sheffield, known as Logicor 615, on a 10-year lease at an unspecified rent. JLL advised Clipper Logistics, while CBRE, CPP and DTRE acted for Logicor.
It was the biggest deal of an existing warehouse in the UK in 2018 and according to Jonathan Compton of CBRE: “It was a standout letting. If anything could be used as a barometer of the logistics warehouse market it is this deal. It was the most impressive deal of the year because of its second hand nature.”
The 614,497 sq ft warehouse was originally built by Gazeley as a design and build for printing company Polestar in 2004, when quoting rents were £4.50 per sq ft. The facility was rented on a 30-year lease. On 31st May 2016 Polestar shut up shop abruptly with the loss of 500 jobs, having gone into administration.
Logicor, which had acquired the property through previous investment vehicle Blackstone Real Estate in 2013 for £26.5 million, was left with a very bespoke property, which it had to re-let as soon as possible.
Mike Best of Logicor says: “We wanted to create a more institutional building. The site needed remediation, it needed new doors to increase the through flow of the building and reconfiguration, which led us to looking at redeveloping some underused land on the site for car parking and providing a new 360 degree circulation road.”
The £4 million refurbishment also saw new sustainability features added, including LED lights, Electric Vehicle charging points and upgraded ventilation and air-conditioning systems. These changes contributed to an improved EPC rating of B(42) compared to the previous rating of E(119).
At this time Clipper was working to land the Prettylittlething.com contract and the building being in the North close to where the ecommerce retailer’s parent company boohoo.com is based, meant that it got on to the short list. Clipper brought Logicor in on the deal to persuade Prettylittlething.com that the project was deliverable with the result that Logicor, Clipper and Prettylittlething.com working collaboratively to deliver the facility exactly as wanted. The refurbishment took 9 months start to finish and the property was officially let to Clipper in May 2018 bringing with it some 1,000 jobs.
The warehouse benefits from 15 metre clear eaves height, 33 dock levellers, 15 level access loading doors, 360-degree circulation, a new additional yard, 229 car parking spaces and a 3MVA power supply.
Parkfield Industrial Estate, Battersea
Auction house Sotheby’s agreed a 10-year lease on a 2,100 sq ft unit at Parkfield Industrial Estate, Battersea in the heart of London at a rent of £30 per sq ft. In a separate deal at the industrial park kitchen business Food Stars took a 25-year lease on 4,600 sq ft unit also on a rent of £30 per sq ft.
This rent is believed to be the highest ever achieved for a standard open market industrial letting in the UK. M7 was appointed asset manager in September 2017 and facilitated the deals.
For Charles Binks of Knight Frank this deal was a stand out one. “It showed the rate of rental growth in London – you have double figure rentals aright across the Capital now.” And John Murnaghan of M7, says: “These lettings have set a milestone both for Battersea and the wider market as the race for well-located industrial space continues. We are seeing rental levels hitting new heights across the UK fuelled by the supply/demand in-balance and overall structural changes in the market. It is mixed picture in some parts of the country but estates that have strong fundamentals like Battersea continue to drive performance.”
For comparison to ascertain the rate of rental growth over a five year period records show that the property was acquired by Columbus UK Real Estate Fund in December 2013, in an “off -market” deal for £4.25 million an initial yield of 8 per cent and a capital value of £110 per sq ft. The passing rent at the time was £10.85 per sq ft.
Parkfield Industrial Estate is close to Clapham Junction railway station and comprises terraced industrial units over four blocks divided into two standalone units, two semi-detached terraces and a detached terrace.
Units 1 -16 were constructed in the early 1980s, while Units A, B & C were constructed in the late 1970s and comprise 3 industrial/warehouse units, arranged in a terrace fronting the railway line. Four of the units were subject to a fire in 2016 and were re-built in 2018.
East Midlands Gateway
SEGRO pre-let 1.75 million sq ft of warehouse space at its 700-acre East Midlands Gateway scheme in three deals at the beginning of 2018. It secured a 700,000 sq ft letting with XPO Logistics for a contract with Nestlé, a 500,000 sq ft deal with Amazon (1.3 million sq ft if counting mezzanine floors space) and a further 550,000 sq ft deal with Shop Direct – the business behind the Very and Littlewoods online shops.
For Andrew Jackson of Avison Young: “It wasn’t about the one deal, it was the clutch of deals they managed to pull off so quickly that was impressive basically justifying the huge £100 million infrastructure commitment they had signed up to when they had had no tenants at all; it’s the sort of thing that would give you a sleepless night and it could have got ugly very quickly.”
The £100m infrastructure at the six million sq ft scheme includes improvements to the M1 motorway at Junction 24 and 24A, a bypass linking the site to Kegworth, which includes a 1200 tonnes bridge over the M1, and the delivery of a 50 acre rail freight link – set to be completed this year. The site has also secured connection of 28 MVA power that will support up to 6 million sq ft high specification logistics space and enable occupiers to begin installing technology as part of their internal fit-outs.
Andrew Pilsworth of SEGRO, says: “Our strategy at SLPEMG is to deliver the off-site and on-site infrastructure in parallel, whilst also delivering the units for occupiers meaning the new facilities can be operational more quickly.
Since securing the three deals the developer has also got a 15-year letting with Kuehne & Nagel for a 195,547 sq ft unit (which includes 40,000 sq ft of temperature controlled space) on a 17-acre site and is bidding with its partners at North West Leicestershire District council, to be one of the four Heathrow Airport Logistics Hubs across the UK.
Sainsbury’s warehouse, Elstree Distribution Park
Reportedly new UK entrant developer First Panattoni bought the former Sainsbury’s warehouse at Elstree Distribution Park in Borehamwood for £53 million – equating to just shy of £3.35 million an acre. Cushman & Wakefield advised Sainsbury’s.
For Phillip O’Callaghan of Mountpark this was the deal of 2018. “It made us all sit up and hold our breath – to pay £3.35 million an acre when the market thought it was worth £1.75 – 2 million an acre. It was by far the highest land price paid outside London and definitely got people talking.”
The developer beat off stiff competition from dozens of industrial developers, including Gazeley, Goodman and Prologis, to secure the 16-acre site at Elstree Distribution Park.
Matthew Byrom of First Panattoni explains “…sometimes we see an angle that the market misses, or other times we find value by taking a wider view on pricing. Our philosophy on acquiring new sites is simple; we buy prime, then push values forward by putting assets into production. If we don’t have the confidence to spec build, we won’t consider the location viable.”
When the company first announced that it would speculatively develop 3 million sq ft of warehouse space a year in the UK in units over 300,000 sq ft – it put the cat among the pigeons. Not least because many pundits could not see where the land would come from to reach such a target but with deep pockets and a willingness to pay a full price, land does not seem to be such an issue.
The company secured £300 million to progress the first wave of speculative development and launched a number of sites in 2018 including a 450,000 sq ft cross dock facility at Four Ashes in Wolverhampton as well as a 550,000 sq ft, a 310,000 sq ft and a 220,000 sq ft unit at Nottingham 26 just of Junction 26 off the M1 motorway. It is planning a 350,000 sq ft warehouse at Borehamwood and also has a 375,00 sq ft unit under construction in Bolton. It had more than 3.5 million sq ft of space scheduled to be in production by the end of 2018, with further ambitious plans for 2019.
Matthew Byrom says “…the UK has one of the most advanced e-commerce economies in the world, with a higher percentage of sales being undertaken on-line than any other European Country, including Germany at 15 per cent and France at 10 per cent. North America has just 9 per cent of total sales being concluded on-line, yet the UK has a very tight supply of available land, with an increasing desire of customers wanting to consolidate their distribution networks in to larger, more efficient warehousing. In 2017 around 75 per cent of the UK market was pre-let, with 25 per cent being speculatively built – in most Northern American markets this figure is inverted. Our business model is not seeking to increase the size of the UK market, but simply convert a number of the existing build-to-suit requirements into spec product.”
This article first appeared in Logistics Manager, February 2019