Demand for logistics space is as strong as ever for the West Midlands but there are major hurdles to overcome. Liza Helps reports.
According to Avison Young research 14 units of 100,000 sq ft plus, totalling 3.44 million sq ft, were taken up in the West Midlands in 2018, and across all sizes. Lambert Smith Hampton’s latest report notes there was a whopping 10.4 million sq ft taken up overall but this was less than half its 2017 total.
Indeed research by Savills notes: “After two strong years, take-up has tailed off.”
But says Robert Rae of Avison Young: “There was room for more to be taken up.”
Demand is still strong. Simon Lloyd of Cushman & Wakefield says: “Enquiry levels are good.”
The West Midlands is considered an extremely attractive location with Simon Norton of Colliers saying: “The Midlands is a bit of a hotspot – not least because of its cluster of large parcel hubs, motorways and its central location.”
Indeed Jonathan Wallis of db symmetry says: “We have had considerable occupier interest in our scheme in Rugby – possibly more interest in it than any other scheme in the portfolio in the past six months – and we have yet to secure planning permission.”
Symmetry Park Rugby will see the development of a 358-acres delivering 2,150 homes and up to 1,949,000 sq ft of logistics floor space. Allocation of the site in Rugby’s Local Plan is anticipated to be this spring with an outline planning permission for the scheme anticipated in the Autumn.
Such is the appetite for space that when sites do come up, in general they are quickly put under offer. Charles Spicer of Savills notes: “It took 15 years for the land at Hams Hall to secure approval and there has been a pre-let of half of the available space within six months of the scheme launching.
Even second hand space is moving fast. Spicer says: “An 85,000 sq ft came back to the market and was re-let soon after marketing on improved terms. Core prime stock remains sought after and opportunities for leasing go pretty quickly.”
The swift letting of St Modwen’s 153,000 sq ft warehouse in Tamworth at Centurion Park shows that “there is increasing appetite for industrial and logistics space,” says Greg Titley of St Modwen.
Indeed, so much so, that the developer is confident enough to build its largest ever speculative facility. The 318,500 sq ft property at Tamworth Logistics Park is due to be completed in December. Savills and Colliers are joint agents.
It seems there are a host of developers out there actively seeking development opportunities. Barberry Developments is just one of many. Jon Robinson of Barberry says: “Birmingham and the West Midlands is in dire need of more high quality industrial accommodation.”
“For three years demand has been very strong,” says Richard Phillips of Logicor, “to the extent that occupiers do not seem to be breaking from leases and in many cases are renewing on the space that they already have got.”
The big issue is that there just does not seem to be enough product immediately available to satisfy demand. Current supply, according to Avison Young, sees just 18 units over 100,000 sq ft accounting for 3.39 million sq ft in the West Midlands roughly equivalent to a years’ supply possibly less.
And the reason fort this lack of product, is land – or rather the lack of it, which is holding back the market.
Alan Sarjant of Prologis says: “There is still a significant appetite from developers and investors for speculative development sites and the Midlands continues to be one of the most attractive locations for industrial and distribution sector occupiers. While it is always pleasing to see this level of activity in the region, it also underlines that one of the key issues in this region remains that of supply of suitable employment land.
And that issue is polarised in the West Midlands, Rae explains: “The East Midlands substantially outperformed the West Midlands last year because the West Midlands has not had the large development sites to satisfy demand.”
Norton says: “Land is difficult to find especially in the West Midlands.”
So much so, says Mike Best of Logicor, that the fund ‘would consider buying land [in the West Midlands]if we could speculatively develop it.”
That is not to say there is no land available the problem is there is land but says Wallis: “The trouble is all the available land is in small sites in poor locations – what we need is large plots in well located areas – that is where the demand is.”
The lack of suitable sites means that occupiers could struggle to find the space they need. Phil Oakley of Prologis says: “Currently, there are very few build to suit opportunities because of a lack of available land so occupiers can struggle to find a site with the right credentials for their operations: location, size or readiness for development, for example.
“The Birmingham conurbation is the second most populated region in the UK (behind London) and has a dwindling supply of land for industrial purpose (largely due to a loss of industrial space to residential development and the constraints of the greenbelt).
“As a result we could find ourselves facing the same problem as the capital where we have nowhere to house logistics and industry close enough to the population centre. We are keen for the conversation around future provision and the opportunities that brings to continue so that the future needs and requirements can be met.”
Wallis agrees: “Because there is not the land availability, the combined local authority needs to take a more pragmatic approach to satisfy the changing marketplace.”
The most recent land release saw IM Properties successfully bidding to secure the right to develop Birmingham Council’s Peddimore site.
IM Properties has recently submitted plans for the 165-acre Peddimore site in Minworth. The application envisages the development of 2.657 million sq ft of warehouse space.
There are two indicative master plans for the site across two development zones, Zone A and Zone B. According to the layout plans there could be plots on the site that could offer warehouses up to 1 million sq ft. Zone A which totals 91.5 acres could accommodate a unit of up to 900,000 sq ft, while Zone B totalling 72.8 acres could accommodate a unit of 1 million sq ft.
The planning application is expected to be determined by Birmingham City Council in the spring and, subject to permission being granted, work could begin on site as soon as the summer.
The planning application follows extensive pre-application dialogue with officers at Birmingham City Council and a major consultation, which included eight public exhibitions and a comprehensive programme of engagement with elected members, residents, community groups and businesses.
IM Properties was chosen by Birmingham City Council as its preferred partner for phase one of the regeneration of the Peddimore site near Sutton Coldfield in March 2018 beating developers Bericote and Prologis to be selected.
The first phase covers 91 acres of the 175-acre park with the second phase to be retained by the city council for development at a later date.
The first phase of work will include a new junction on the A38, utilities and more than 484,000 sq ft of industrial floor space within two years of the access being completed.
As a result of the shortage of land for development what little does come to the market is commanding high prices. Goodman is thought to have paid up to £1.2 million an acre for a 10.3 acre logistics site at Bermuda Park, Nuneaton, which could provide up to 230,000 sq ft of distribution warehouse space.
Work on the development is to start in the spring to be available for occupation from December 2019.
“With a shortage of Grade A space of this size available and clear market demand, we anticipate the development will appeal to logistics companies and retailers operating on either a national or regional basis,” says Goodman development director Nigel Dolan.
Richard James Moore of JLL says that obviously this type of price is for ultra prime sites but adds: “There are a number of sites hitting upwards of £1 million an acre and this will not abate such is the shortage of suitable plots.”
On this basis Spicer says: “We are suggesting that for occupiers, that leasing, rather than freehold, is the best use of capital resource – you could be spending nearly £30 million just to acquire enough land for a 600,000 sq ft facility.”
And it is not likely to get any better in the foreseeable future. Norton says: “Strong market fundamentals, coupled with underlying rental growth dynamics, have created the perfect storm to exert upward pressure on land values – we expect this trend to continue throughout 2019.”
As to be expected higher land values translate in to higher rent levels. Rae says: “Rents have moved on reflecting land prices. We gave seen rents developer and funds pushing rents on to £6.75 plus for over 100,000 sq ft. We have also seen second hand units of up to 15 years old achieve rents of £6 plus.”
Recently, the former Palmer & Harvey unit Coventry 210 at Coventry Business Park was let at a rent of £6.75 per sq ft. The 210,682 sq ft facility was marketed by Moriarty & Co and Savills.
Norton says rents have reached as high as £8 per sq ft for units of sub 100,000 sq ft.
Rent levels are going to continue to increase says Lloyd: “We are forecasting increases of 2.5 per cent across the board with the West Midlands slightly ahead of that.”
There is good news however, with rent levels increasing what land does become available is being developed rather than being land banked.
There are a number of speculative developments around the region these include Trebor and Rockspring’s 115,185 sq ft Triton development, located at the Redhill Business Park, close to Junction 14 of the M6 motorway, near Stafford, the building has six dock and two level access doors, as well as a 12.5m eaves and a 50kn/sqm floor loading. Joint agents Avison Young and JLL are quoting £5.75 per sq ft.
Stoford and Liberty Property Trust have a 102,000 sq ft warehouse as one of three units at 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.
Canmoor and Aviva have speculatively developed a 142,000 sq ft unit known as Jupiter in Cannock. It has 12.5m eaves as well as 12 dock and three level access doors. Letting agents are JLL and Cushman & Wakefield.
There is also a 153,000 sq ft unit in Cannock being built by Opus Land and Bridges on a scheme known as Conneqt. The warehouse to be known as Alpha has 12 m eaves as well as 14 dock and two level access doors. Letting agents are Knight Frank, JLL and Bulleys.
In Stoke, LondonMetric has its 140,103 sq ft unit at Campbell Road. The warehouse has 12m eaves, a 50m yard as well as 12 dock and two level access doors. It has 43 HGV and 144 car parking spaces and fully fitted offices. Letting agents are Avison Young and CBRE.
M&G Real Estate, Rigby Group and Evander Properties have their 169,306 sq ft Unit 2 at the 29-acre Imperial Park in Coventry. It is one of three speculative units built on the site, which was acquired in 2016. The smaller unit of around 60,000 sq ft was let prior to practical completion to Innovare Systems. Joint letting agents are MWRE and Colliers.
For those occupiers looking for units over 200,000 sq ft, these are more evenly scattered across the region.
There is M&G Real Estate, Rigby Group and Evander Properties 340,859 sq ft warehouse at Imperial Park in Coventry, known as Unit 1, which has 34 dock and four level access doors as well as a 55m secure service yard. It has a 50kn/sqm floor loading, 15.22m eaves height as well as two-storey office totalling more than 9,000 sq ft as well as a further two-storey hub office of 4,000 sq ft. It also has 390 car parking spaces.
Then there is the 372,000 sq ft M6DC warehouse in Cannock, which is being brought forward by Exeter Property Group and Graftongate. The facility has 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 GVA.
The largest speculative development in the region has to be Panattoni’s 448,123 sq ft warehouse at Four Ashes in Wolverhampton.
To be known as Wolverhampton450, the building, which will be a cross-docked unit boasting 15m eaves, 60 dock level doors and two 50m yards, is located close to Junction 12 od the M6 motorway. It has a 50kn/sq m floor loading as well as a main office totalling 13,003 sq ft and two two-storey hub offices totalling 10,161 sq ft. It also has a power supply of 2.1MvA as well as 190 HGV parking and 440 car parking spaces. JLL and DTRE are joint letting agents.
Prologis has two units of 234,718 sq ft and 77,484 sq ft available at its 16-acre Prologis Park Birmingham Interchange. Letting agents are Savills and Burbage Realty.
Not all available units are brand new, Prologis has a refurbished unit on the market – DC2 at Prologis Park Stafford. The 128,830 sq ft warehouse is back on the market having undergone a significant refurbishment. The facility is fully fitted with heating sprinkler and upgraded LED lighting.
It has two yards of 35.5m and 30m deep as well as 11 dock and two 2 double height level loading doors. It has 12m eaves and 25 HGV spaces and 123 car parking spaces. Letting agents are JLL and MWRE.
The developer is also currently refurbishing a 446,000 sq ft building at Prologis Central Park Rugby. Adjacent to J1 of the M6 motorway, the building includes a 70,000 sq ft mezzanine above the dock face and benefits from £2 million of high-level fit out including a sprinkler system and LED lighting.
The building will also include above standard welfare provision, including more toilets, showers, a multi-faith room, first aid and security space. Prologis also intends to include an employee gym within the building. It is available for occupation in April 2019. Joint letting agents are CBRE, DTRE and Avison Young.
This article first appeared in Logistics Manager, April 2019.