The amount of speculative development has doubled in the past 18 months but is it enough? Liza Helps reports.
Last year saw a record number of speculative development announcements according to Savills’ latest Big Shed Briefing but is it enough to satisfy demand? And is it just economic/political uncertainties that are preventing speculative development from taking place or are there other underlying issues.
JLL research notes: “At the end of December 2018, Grade A availability stood at around 23.6 million sq ft, of which 15.9 million sq ft was in new units, including floor space speculatively under construction. The remaining 7.7 million sq ft comprised good quality second-hand space.
“Of the 15.9 million sq ft of new space available, 8.5 million sq ft was immediately available and 7.4 million sq ft was speculatively under construction.
At the end of December 2018 total Grade A availability was 16 per cent up on mid-2018 and 57 per cent higher than at the end of 2017. The pick-up in supply compared with the end of 2017 was predominantly due to an increase in new space, which was 81 per cent up on the end of 2017; good quality second-hand space was 23 per cent higher on the same period. There was a large increase in big box speculative development over the course of 2018 with approximately 7.2 million sq ft of speculative floor space completed in 2018 and a further 7.4 million sq ft under construction at the end of the year boosting overall supply levels.”
“Despite an overall increase in new supply last year,” Ed Cole of JLL says: “the level of new supply at the end of 2018 was still 45 per cent below the pre-recession peak, and, at the end of 2018 overall Grade A supply represented just 14 months of demand compared with the average level of Grade A take-up over the last five years.”
Len Rosso of Colliers agrees: “While the amount of speculatively developed distribution warehouses has picked up over the last 18 months, this has done very little to bolster availability, with some tenants in some cases having no choice but to build or commission their own Design & Build space to satisfy their requirements.”
It seems as though demand, despite the economic and political uncertainties, is as strong as ever. Simon Lloyd of Cushman & Wakefield says: “Occupier demand still remains very robust.
“Demand is driven mainly by e-commerce and growth of that market has doubled every five years and seems set to continue – a greater range of products is being sold online and frequent delivery times all impact on the demand for logistics buildings fundamentally underpinning the whole market.”
Research by developer investor Panattoni suggests: “The structural shift in retail shopping pattern seems an irreversible trend, which provides added impetus to the emerging growth in the logistics warehouse story. With online retail sales still only reaching 18 per cent of total retail sales, it would be hard to argue that the market hasn’t got further to climb, particularly given the increasing growth of m-commerce (mobile phone commerce) where we have seen the highest acceleration of retail activity.”
Cushman & Wakefield Research notes that speculative development saw the lowest void periods since the company began tracking it across the UK in 2009, reaching an average nine months for new spec build space. Basically as fast as it is going up it is being let.
This was one of the principal reasons for Panattoni expanding in the UK on a speculative development basis. Within a year of entering the market the company now has £600 million of development committed to build in the UK with more than 3.5 million sq ft of speculative product under way and more in the pipeline.
Matthew Byrom of Panattoni 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 American 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.”
It has not gone unnoticed that there are an increasingly bigger number of large speculatively built warehouses under construction in the UK. Jonathan Compton of CBRE notes: “Take –up in 2018 saw an increase in lettings of the XXL warehouses. This has given developers confidence to build speculative warehouses on a very large scale.”
Gazeley’s Altitude building totalling 574,000 sq ft is under offer while three other XXL warehouses over 500,000 sq ft are currently being built around the country.
Panattoni is currently speculatively building a 550,000 sq ft cross-dock facility at its Panattoni Park Nottingham scheme near Junction 26 of the M1 motorway. It is due to complete in the Spring. The developer is rumoured to have secured a plethora of other sites in the region, which it intends to speculatively develop. It has recently secured the remaining land at Goodman’s Derby Commercial Park. The developer is currently negotiating changes to Plot L at the site which could provide a 530,000 sq ft cross dock facility which would have 15m eaves, 56 dock levellers as well as parking for up to 389 cars and 114 trailers on a secure 26.5 acre site.
Meanwhile IM Properties is speculatively building a 532,000 sq ft facility at its Hinckley Park scheme alongside the new super hub for parcel giant, DPD.
IM says the new warehouse and offices will contribute to the 2400 jobs expected to be created on the 82-acre employment park, next to Junction 1 of the M69.
It has a target completion date of Q4, 2019.
Elsewhere in the East Midlands, Prologis is progressing a 535,000 sq ft unit at DIRFT.
In the Northwest Bericote is speculatively building a 520,000 sq ft industrial facility in Haydock at its M6major.com scheme, after securing development funding from US investor Hillwood.
As well as XXL schemes developers and investors feel confident to explore more innovative schemes on a much larger scale than previously on a speculative basis none more so than Baytree’s 266,974 sq ft warehouse in Dunstable.
Just three and a half miles from the newly built Junction 11a on the M1 motorway the building at a cursory glance looks like a fairly bulk standard warehouse with office facility, although considerably more handsome than most.
Take a closer look at and it is the attention to detail that surprises, no sharp edges, no awkward window or door placings, careful indigenous planting, walks and accessible outside areas make the whole facility particularly pleasing not just to the occupiers but more importantly to their employees.
But while that is obvious if you care to look, what is not is that the whole building is tech enabled to the nth degree: no more manuals for the building manager, everything about the building and indeed how it was built, is tracked digitally on the cloud. The possibilities for such a building seem endless However, one wonders if the market had not been as strong if such a property could have been built.
This article first appeared in Logistics Manager, March 2019.