With demand seemingly insatiable, developers and investors are set to step up a gear with development across the board, but is this good news for occupiers? Liza Helps reports.
Take-up of units over 50,000 sq ft in the first quarter of the year hit 10.8 million sq ft, according to Gerald Eve’s latest Prime Logistics research, a bit down on the previous quarter but above the five-year quarterly average.
In fact stripping out smaller units and focusing on big sheds sees take-up of units over 100,000 sq ft actually increasing quarter on quarter, with Savills research recording a 7.1 million sq ft take-up level. According to the company, this is 19.5 per cent up on the previous quarter and 26 per cent higher than the long term first quarter average of 5.7 million sq ft.
According to Savills: “The market has benefitted from two key factors, the large amount of build to suit (BTS) deals and the strong level of take-up for units between 100,000 and 200,000 sq ft.
“In the first quarter there have already been four deals over 500,0000 sq ft, compared to eight for 2014 in its entirety. This has ensured that BTS deals accounted for 59 per cent of the market in Q1 2016.”
These include The Range securing 55-acres from Delta Properties at Central Park in Bristol to build a 1.2 million sq ft distribution centre.
The facility will be developed by Stoford and is expected to be operational in 2017. Bilfinger GVA and Knight Frank represented Delta Properties. JLL acted for The Range.
Then there is Amazon pre-letting 1,053,000 sq ft at Mountpark’s Mountpark Bardon scheme in the Midlands off a 15-year lease at a rent of £5.75 per sq ft. The facility, which is due to be completed at the end of the year, has already been forward sold to an Asian investor through BNP Paribas REIM for a record breaking £125 million – the largest lot size for a single-let distribution warehouse in the UK. DTRE acted for Mountpark, while BNP Paribas Real Estate acted for the purchaser.
If that were not enough, DHL is signed up with IDI Gazeley for a 1,085,475.782 sq ft facility on extension land at the developer’s Magna Park Lutterworth scheme in the East Midlands. (However the development is under review due to a legal matter and may not proceed on schedule).
“In the Midlands alone,” says Andrew Jackson of Avison Young: “Our latest statistics up to June indicate a take-up of 4.4 million sq ft. And with a further 3.25 million sq ft under offer it looks like we are going to beat the 7.8 million sq ft take-up recorded for last year.”
Sally Bruer of Gerald Eve says: “ Occupier demand boomed during 2015: at 45.1 million sq ft occupier take-up of units of 50,000 sq ft or more was the highest recorded – even more than 2005.”
So far in 2016, according to Austin Thomas of JLL: “Occupier demand has been persistent with take-up 22 per cent up on the end of Q4 2015.”
“Cushman & Wakefield’s latest Property Times report states there continues to be considerable pent-up demand for prime buildings and there is now a definite appetite for newly-constructed buildings outside the M1 and M6 corridors.”
Indeed, Charles Crossland of Goodman notes: “We continue to receive strong enquiries for new space recently completed and under construction, together with opportunities for bespoke development across the board.”
Such is demand that in some prime locations developers are putting in planning applications for facilities they have already let. Rumour has it that Bericote Properties has secured tenants for both the buildings at its proposed 1.4 million sq ft warehouse scheme at ‘Florida Farm’, an extension to the Haydock Industrial Estate in St Helens, Merseyside.
Two units are envisaged: one of 900,000 sq ft unit and another of 500,000 sq ft. A planning application is due to be lodged shortly.
Bruer explains: “Demand for logistics fuelled by the structural shift in the way we shop – that is, online – has meant not only record levels of demand for space from internet retailers – over five million taken-up in 2015 – but also from parcel and postal operators who took almost two million sq ft to increase their capacity [in 2015]to support the delivery needs of on-line retail.”
It is thought that internet retailers require three times as much space for logistics than other retailers due to the fact that they do not have a high street presence and cannot take advantage of the storage facility that a network of shops can provide.
While the demand for space is strong and take up is strong the development pipeline is still lagging and as a consequence availability is diminishing. Since the beginning of 2016, an additional 31 units, totalling 5.3 million sq ft, have come to the market across the country, of which 1.9 million sq ft is classified as new speculative development. Excluding build to suit, take-up of existing units in the first quarter reached 2.7 million sq ft meaning total supply fell by 900,000 sq ft. Total supply now stands at 33.1 million sq ft. Of that only 9.8 million sq ft is Grade A says Savills a drop of 4.9 per cent year on year.
At a regional level, the East Midlands saw 1 million sq ft of speculative units come to the market accounting for 55 per cent of all of the speculative completions so far in 2016. In the North West an additional 1.2 million sq ft of warehouse space came to the market, all classified as Grade B and C.
Of the core logistics regions Savills monitor, the highest supply was recorded in the North West which has 40 units on the market totalling 6.87 million sq ft, of which 82 per cent are either Grade B or C. The West Midlands has just 2.8 million sq ft on the market, down from close to four million sq ft in 2014.
The largest immediately available units on the market are the former Matalan unit in Skelmersdale, which totals 391,000 sq ft, and the former Primark unit at Magna Park Lutterworth. This Grade B unit totals 411,613 sq ft and will be available for occupation in the autumn.
It has 15m eaves, 26 dock and three ground level loading doors, as well as 74 HGV and 231 car parking spaces and offices. The warehouse benefits from narrow aisle high bay storage racking, mezzanine floors and garment racking, together with a mechanised handling system – complete with all requisite services including heating ventilation, lighting, sprinklers, fire alarm and detection systems.
Letting agents are JLL and Avison Young on behalf of landlord SEGRO.
It is worth noting that second hand units are equally difficult to come by according to Gerald Eve’s Prime Logistics report: “Very little second-hand stock has been returned to the market due to the expansionary nature of current demand, and when it has been returned it has been let very quickly.”
As a result of growing demand and lack of availability Richard Sullivan of Savills says: “Delivery of new speculative warehouse space across the UK is set to increase by 160 per cent.”
There is currently 8.8 million sq ft of speculative development due for delivery in 2016, with major schemes in the pipeline including Logistics North in Bolton where First Industrial are delivering 357,000 sq ft and Prologis Park Dunstable where 358,068 sq ft is available.
This is a marked increase on last year’s figure of 3.3 million sq ft. In 2015, 25 per cent of new space was let prior to completion, suggesting that a significant increase in construction is necessary to satisfy the current market requirements.
Simon Collett, head of building and project consultancy at Savills, adds: “This phase of speculative development is different from the last and needs to be as the occupier base continues to shift. The onus is now on investors and developers to consider flexibility in their building design, both for the here and now and the mid to long term.
“The idea that one-size-fits-all is under serious challenge, so by guaranteeing that buildings are flexible, environmentally sustainable and cheaper to run you can future proof space, which ultimately reduces the risks for investors when trends inevitably change in years to come. It is now crucial that individual consideration be given to each new site, build-to-suit included, as flexibility is the new currency when it comes to industrial and logistics.”
Recently announced speculative schemes being brought forward this year include two units at Mountpark Bardon of 314,500 sq ft and 63,560 sq ft. The larger unit will have 30 dock and four level access doors, 50kN/sqm floor loading a 55m yard and 15m eaves. Joint letting agents are DTRE and Avison Young.
Mountpark is also speculatively developing 400,000 sq ft in conjunction with Stoford in Bristol.
The £43 million speculative warehouse scheme is being built on a 20 acre plot at Delta Properties’ Central Park development in Avonmouth, which Stoford acquired earlier this year.
The three units of 200,000 sq ft, 120,000 sq ft, and 80,000 sq ft will commence later this month with practical completion scheduled for spring 2017.
Stoford is also speculatively developing three warehouses with another joint venture partner Liberty Property Trust at their £38 million 30-acre Liberty Park scheme in Lichfield, West Midlands.
The warehouses will measure 102,000 sq ft, 31,500 sq ft and 27,000 sq ft respectively and, subject to planning approval, work could begin on site this summer.
Liberty Property Trust’s managing director Andrew Blevins said: “Our investment in three speculative units is in response to demand in an under-supplied market.”
Letting agents are CBRE and Avison Young.
Prologis is on its second tranche of speculative development since 2013 with units totalling 1.2 million sq ft being developed in five distribution centres and across its first small-unit scheme in four prime UK logistics markets.
At the third phase of Prologis Apex Park in Daventry, Prologis is building two units of 215,262 sq ft and 85,262 sq ft, which will complete shortly. It has already let one of those units to Hellmann Logistics.
The larger unit will have 12.5m eaves, 20 dock and two level access doors, 30 HGV and 157 car parking spaces. The smaller unit will have a 10m eaves height none dock and two level access doors, 18 HGV and 66 car parking spaces.
Letting agents are Lambert Smith Hampton and Burbage Realty.
At Prologis Park Dunstable, Prologis has recently completed a 358,000 sq ft facility. The new distribution centre will be on the final plot of Prologis’ Boscombe Road site.
At its flagship scheme Prologis Park Ryton near Coventry, the developer is set to build a further two units of 141,500 sq ft and 328,000 sq ft; both buildings will complete in the spring of 2016.
Prologis will also build its first small-unit scheme in the UK at Prologis Dawley Road at Hayes in West London. Offering a total of 120,420 sq ft in six buildings ranging in size from 2,870 sq ft to 52,540 sq ft, Prologis Dawley Road will complete in April 2016. Prologis Dawley Road is three miles from Heathrow Airport, in a well-established industrial location that offers convenient access to the M4 and M25.
“This new phase of speculative development builds on the success of the 1.5 million square foot programme we began in a measured way at the end of 2013,” says Paul Weston of Prologis. “With the vacancy rate for Class-A industrial and distribution buildings across UK markets at 2.1 per cent, it’s imperative we anticipate demand and ensure we have a range of modern, high-quality facilities in prime locations across the Midlands, London and the South East.”
The first phase of Prologis’ speculative development programme included six distribution centres, five of which were let while under construction or shortly after completion. The sixth building, a 316,000 sq ft joint venture with DP World London Gateway at the London Gateway Logistics Park, completed in November 2015.
In addition to those units already announced Prologis has started the speculative development of two units of 113,335 sq ft and 78,780 sq ft at Prologis Park West London, its 30-acre site next to Stockley Park in Hayes, Middlesex.
Volkerfitzpatrick has been appointed as the main contractor and construction work started in early January. Each distribution centre will include a rooftop solar installation that will generate 10 per cent of the building’s regulated energy.
Both new facilities will be constructed to achieve a minimum BREEAM ‘very good’ rating and the best EPC rating possible for their size.
Anglesea Logistics and Goodman have completed on two new speculative distribution centres of 338,798 sq ft and 267,699 sq ft in Andover Business Park, Hampshire, and London Medway Commercial Park respectively.
The Hampshire based site, known as ‘Angle340’, features a 55 metre wide service yard, 15 metre clear internal height, 30 dock levellers, and four level access loading doors, gatehouse, parking for 337 cars and 73 HGVs. The site will also include 21,193 sq ft of office space.
The new site at London Medway Commercial Park, known as Angle265, also features a 55 metre wide service yard, a 15 metre clear internal height, as well as 24 dock and seven level access loading doors, gatehouse, parking for 236 cars and 84 HGVs, together with 19,662 sq ft of office space.
Letting agents at Angle340 are DTRE, CBRE and Strutt & Parker while letting agents at Angle265 are DTRE, CBRE and Moriarty & Co.
It is not just developers looking to speculatively develop, funds are also in on the act indeed Legal & General’s Industrial Property Investment Fund has started speculative construction of Alchemi a 195,000 sq ft warehouse in Crick, Northamptonshire, with completion anticipated this autumn. The site lies adjacent to junction 18 of the M1 motorway.
The development is one of four that Legal & General is currently developing totalling some 600,000 sq ft of industrial space.
While speculative space is being developed the consensus of opinion is that it is just not enough to satisfy demand. Lambert Smith Hampton latest Industrial & Logistics report notes: “Despite the turnarounds [in speculative development]Grade A supply has only been restored to its 2013 level, and is less than half its peak in 2009. It also does little to address the overall pressure on supply with UK availability is still falling.”
According to Gerald Eve the crucial element to understand when building speculatively is the expected period of void following development completion.
“Our analysis of the length of time from completion of speculatively-built units to the first recorded letting during the last development boom of 2005 – 2009 and the current phase of development highlights the very different market conditions in each period.
“Of the 2005 – 2009 generation of speculatively built space, the period form completion to letting was 29 months across all size bands and regions. This falls to 22 months for units of 50,000 – 100,000 sq ft but is till almost two years void.
“Of the 2014 – 2015 speculative development, the average period from completion to letting was just over one month, falling to less than half a month among the smallest units of 50,000 – 100,000 sq ft.”
While this should spur developers and funds alike to speculatively develop, there is still an air of caution with developers seeking speculative development in prime locations almost exclusively. However there is an element of jockeying with developers actively seeking land.
Toby Green of Savills says: “There is definitely land but land with planning permission is difficult to find.”
Those developers that have land are now actively taking it though the planning process and those that have secured planning are now seeking to install development infrastructure to make holdings ‘oven ready’.
Working with joint venture partner Roxhill, SEGRO is progressing with infrastructure works at Junction 10 Business Park in Kettering just of Junction 10 on the A14 trunk road. The 90 acre site can accommodate up to 1.25 million sq ft and will cater for units of up to 275,000 sq ft. Buildings could be available from 2017.
Big scheme planning approvals include Sterling Capitol and HCA’s 2.4 million sq ft scheme in Goole and Roxhill and SEGRO’s six million sq ft East Midlands Gateway to name but a few.
The Goole scheme received planning approval earlier this year. The hub will be located within the Humber Enterprise Zone, with direct access to junction 36 of the M62 and the Port of Goole, and the potential for a dedicated rail link. 339,719.78 sq ft will be for general industrial purposes, and 1,622,928.59 sq ft will be used for storage and distribution.
The development will be made up of two parts: The first is Goole36, a total of 39 ha (96.4 acres) across a larger area of the overall site, promoted by the HCA for direct development. The second part is Capitol Park, 13 ha (32 acres) controlled by Sterling Capitol and offering design and build development opportunities, close to the existing Tesco Regional Distribution Centre, Drax biomass facility and the Guardian Glass factory.
“Goole36 and Capitol Park now represent a major opportunity in the East Riding area, offering significant potential for employment and distribution development on a strategic site close to the M62 and the ports at Goole, Grimsby, Immingham and Hull,” said Nick Fillingham, associate director at Indigo Planning. “Their location within the country’s largest Enterprise Zone is a clear signal of the growth opportunities they represent and the creation of over 3,000 new jobs will provide a significant boost to the local economy.”
Further north, Citrus Durham is working on a 2 million sq ft industrial and logistics hub in County Durham, which is being marketed by Naylors and Avison Young.
The scheme to be known as Integra 61, on a 200-acre site at J61 of the A1(M) south of Durham city, will be a mixed-use commercial scheme that will include up to 2 million sq ft of employment space comprising large industrial and distribution units, a 70-bedroom hotel, a residential care home, restaurants, a GP surgery, retail units and up to 270 new homes along its boundaries closest to Bowburn village.
Robert Rae of Avison Young said: “We are aware of a number of sizeable requirements in the market right now and there are few, if any, other comparable schemes in the North East that can accommodate these, so we are very confident Integra 61 will appeal to major occupiers particularly given its location immediately alongside the A1(M).”
David Cullingford, development manager at Citrus said: “We have worked incredibly hard over the past two years alongside the officers of the Council and other stakeholders to produce a high quality master plan that will create a first class environment for businesses and residents alike.”
“Our aim is simple: to see Integra 61 become the premier industrial and logistics location in the North East, with the ability to satisfy the large-scale requirements of major national and multi-national companies.”
Keith Stewart, head of industrial agency at Naylors added: “The scheme has the capacity to accommodate individual units of up to 1 million sq ft, making it ideal for occupiers with large space requirements and addressing the region’s severe shortage of big sheds.”
Citrus aims to start infrastructure works in early 2017 with the first units available for occupation from Autumn 2017.