Tuesday 26th Sep 2017 - Logistics Manager

Price of popularity

The West Midlands has the most diverse range of occupiers of any region in the UK, but what does this mean for the logistics industry? Liza Helps investigates.

This article first appeared in Logistics Manager, April 2017.

This article first appeared in Logistics Manager, April 2017.

The Midlands scored the largest take-up of industrial and logistics property in the UK in the second half of 2016, according to latest research from property consultancy Knight Frank.

The firm’s newly published Logistics and Industrial Market Report reveals that the region accounted for 38 per cent of total take-up (8.2 million sq ft) in the period July-December 2016.

London and the South East trailed with 22 per cent (4.77 million sq ft) while the North West racked up just 11 per cent (2.38 million sq ft).

The industrial and logistics sector shrugged off Brexit, with occupational activity across the UK increasing by 34 per cent on H1 2016. However the Midlands outpaced the national average at 38 per cent up on the previous six months. Take for the year, at 14.3 million sq ft, was up 18 per cent on 2015 and 23 per cent ahead of the five-year average of 11.6 million sq ft.

According to Savills the West Midlands alone saw 5.5 million sq ft of industrial space transact across 28 deals through the whole of 2016, just shy of 2014’s record 29 deals. The largest transaction in the region during this period was the 562,000 sq ft pre-letting to Screwfix at Prologis Park, Fradley, Lichfield with the pre-let of 543,000 sq ft to Gestamp Tallent at Bericote Properties’ Four Ashes, Wolverhampton, a near second.


Strong demand

Demand has certainly been strong but it has not all come from the distribution sector.

Ranjit Gill, industrial director at Savills Birmingham, says: “The West Midlands is unique in that we have a much more diverse industrial occupier base than anywhere else in the UK.”

This is put down in essence due to the resurgence of the automotive sector. Manufacturing and the automotive sector accounted for 35 per cent of the region’s industrial take up last year (equating to 1.9 million sq ft), while online retail accounted for just 11 per cent (573,000 sq ft), bucking the national trend of the latter sector dominating.

Robert Rae of Avison Young notes: “We have seen a lot more manufacturing enquiries in the West Midlands.”

Recent research by Avison Young in respect of manufacturing puts the overall take up across the Midlands in 2016 at 32 per cent, equating to some 4.18 million sq ft; of that 3.078 million sq ft or 75 per cent was located in the West Midlands. A lot of the take-up was essentially D&B. “But,” says Rae, “it still takes out space and ramps up the competition for logistic occupiers.”

Such is demand in the West Midlands region that schemes that are built are being snapped up on, or even before, completion.

Savills research indicates that the West Midlands now has the highest level of take-up for units let during construction of nay UK region highlighting the weight of occupier demand.

The firm reports that 14 per cent of 2016 deals, equating to 744,000 sq ft, were for properties still under construction, the largest of which was Jaguar Land Rover’s 327,000 sq ft acquisition at Prologis Park Ryton.

Jonathan Wallis, development director at dbsymmetry explains: “While the property funds paused for Brexit and stopped funding speculative development; the majority of occupiers did not pause for breath.

“We have now got the largest disconnect between supply and demand for a generation.”

And demand in the region is only likely to get stronger. Mike Price of property consultancy Johnson Fellows points to the development of HS2. Construction of he high-speed train’s railway will force many business to be relocated from their existing premises along the route. But the big question yet to be answered is: where do they relocate?

Looking at the national picture Lambert Smith Hampton’s latest research notes that overall supply fell by a further 18 per cent in 2016 to stand at a new low of 161.1 million sq ft. However, 10 million sq ft of speculative development was delivered during the year, pushing the supply of Grade A space to 19 per cent, improving from a low of 9 per cent in 2013.

In terms of key size categories, the logistics (100,000 sq ft) and small and medium categories, saw a reduction in supply, falling 5 per cent and 30 per cent year-on-year respectively. In contrast, mid-box supply increased by 21 per cent during 2016, driven by an increase of second-hand space coming back to the market.

Greater London and the South West remain tightly supplied markets; both saw modest increases in 2016 due to new speculative development. All other regions witnessed a fall in supply, most notably the West Midlands, where it fell 27 per cent year-on-year, despite being a key focus of development

“In terms of availability occupiers, in the West Midlands, have a slim choice at present,” says Simon Lloyd of Cushman & Wakefield.


Perilously low

According to Jon Ryan-Gill of Knight Frank, stock levels in the Midlands region are now perilously low. “We have just two months’ supply of new build stock available, and around four months’ of second hand space.”

“There are opportunities for occupiers,” says Angus Huntley of developer Stoford. “They are few and far between; instead of 10 there may only be two and you may have to go after it as there is always going to be a shortage of supply.”

Developers are answering the call and there is speculative space being developed.

Ryan Gill says: “There is more speculative development coming through, with 2.1 million sq ft already under construction by the close of 2016. A further 1.3 million sq ft is planned for late 2017 and early 2018.”

Speculative schemes coming forward or close to completion include: Exeter Property Group and Graftongate’s 372,000 sq ft cross-dock facility to be known as M6DC at Kingswood Business Park in Cannock. The facility will have a 15m clear internal height, 48 dock and eight level access doors as well as 51.5m yards, 74 HGV and 310 car parking spaces. Letting agents are DTRE and Bilfinger GVA.

M&G Real Estate, Rigby Group and Evander Properties are forging ahead with their speculative scheme known as Imperial Park in Coventry where three units of 350,000, 165,000 and 60,000 sq ft are being constructed. M&G Real Estate acquired the 29-acre site in 2016 and has committed over £50 million to the development.

Stoford has Carbon 207, also in Coventry, which is due to complete shortly. The 207,340 sq ft fully cross-docked facility has 12.5m eaves, 25 dock and three level access doors as well as 256 car and 23 trailer parking spaces. It has two-story offices and benefits from a hub office and separate gate-house.

The £23.5 million scheme is being developed in conjunction with property fund Blackrock. Letting agents are CBRE and Moriarty & Co.

If that were not enough then, the developer is also working with Liberty Property Trust to build three speculative industrial and warehouse units on the £38 million Liberty Park complex in Lichfield in Staffordshire. The units will be 102,000 sq ft, 31,500 sq ft and 27,000 sq ft respectively. Letting agents are CBRE and Avison Young.

Goodman is developing a 135,000 sq ft unit at its Lyons Park scheme on the outskirts of Coventry. Known as Lyons135, the facility is expected to reach practical completion in the second quarter of 2017.

It will have 12.5m eaves as well as 12 dock and three level access doors. It also has 135 car parking and 19 trailer parking spaces as well as a yard depth of up to 72m. Letting agents are Savills and CBRE.

Canmoor and Aviva are speculatively developing a 142,000 sq ft unit known as Jupiter in Cannock, which will be available at the end of the year. It will have 12.5m eaves as well as 12 dock and three level access doors. Letting agents are JLL and Cushman & Wakefield.

Not all the speculative scheme’s being brought forward are necessarily over 100,000 sq ft. Jon Robinson, development director at Barberry Developments, is also aware of the acute demand for smaller facilities catering in particular for urban logistics demand in the region.

Barberry has just submitted a detailed planning application to build a new speculatively developed warehouse on a brownfield site in Birmingham.


High quality

The proposed 46,000 sq ft self-contained high quality warehouse facility will be built on a 2.5-acre site on the Walsall Road to the north of Birmingham city centre.

It will have fully-fitted first floor offices, and a secured loading yard with both level and dock level access.

Subject to a planning consent, the building will be constructed in 2017 and will be available to rent or purchase. Robinson says: “The scheme will provide much needed stock to the mid-sized industrial/warehouse sector within Birmingham. “The limited supply of Grade A stock available in the market coupled with strong occupational demand gives Barberry the confidence to speculatively develop the scheme.”

JLL and MWRE are the retained property consultants for Barberry.

Developers would do more but there is one thing that is preventing further development – a lack of land.

“The West Midlands,” says Wallis, “is the most competitive market in the country alongside the M25 and it is characterised by a severe shortage of large deliverable logistics sites countered by unprecedented levels of demand.”

It is the biggest issue for the region that many feel has been overshadowed by the housing crisis and a lack of a unified strategic approach to the release of employment land.

It has been said that while the West Midlands’ combined authority has employment land and employment on its radar, they can only deliver with a planning strategy that enables them to do that. But the planning strategies of the local authorities have been so focused on housing that the surge in demand for industrial space has taken them all by surprise, leaving many authorities in the position where there is little or no significant land supply for employment.


Small and bitty

Lloyd notes that many sites, which are allocated for employment are ‘far too small and bitty and utterly unsuitable for modern logistics use’.

Rae notes: “Take up last year equated to some 300-acres of industrial land and we foresee a big shortage of land for larger units of 300 – 700,000 sq ft.”

Matthew Tilt of Lambert Smith Hampton says: “Land is very tight and there is just not enough of it coming forward.”

Little land has been traded but what has been has gone for what the market considers ‘steamy’ prices. It is rumoured that Prologis paid in the region of £700,000 an acre for its 16-acre site next to Birmingham Business Park

Bought from U+I the new distribution park will be known as Prologis Park Birmingham International.

It is located close to Junction 6 of the M42 and less than three miles from Birmingham International railway station and airport. Planning permission for a total of 310,000 sq ft is in place and Prologis expects that construction will start this summer.

Each new building at Prologis Park Birmingham International will be designed and constructed to achieve a minimum BREEAM 2014 ‘very good’ accreditation and the best EPC rating possible for its size.

“There is strong demand for modern industrial and logistics facilities in the West Midlands, but very little land allocated for industrial development,” says Andrew Griffiths, managing director, Prologis UK.

The next biggest plot to come forward is the 197-acre greenbelt Peddimore site in Birmingham. The site is being brought to the market through Bilfinger GVA.

There are opportunities for occupiers to look at design and build but if demand remains as high as it has been even these schemes will soon be snapped up.

Prologis has a further 24 acre or so at Ryton where it can accommodate up to 550,000 sq ft of space on a D&B basis and it also has land at Fradley Park following the letting to Screwfix that could accommodate a single unit of up to 300,000 sq ft. Letting agents are Savills, JLL and Harris Lamb.

Prologis is also working through a 40-acre site in Hams Hall, which formerly accommodated the cooling towers of the power station.

The site, to be known as Prologis Hams Hall, could accommodate up to 800,000 sq ft of space. The developer expects to make a £70 million investment to develop it. It will be rail connected.