Is there such a thing as a ‘standard warehouse’ these days? Liza Helps reports.
The age old conundrum of ‘institutional standards’ verses ‘occupier requirements’ still exists, according to James Kelway of Savills. It’s a case of what institutions are prepared to forward fund or invest in against what occupiers really need to function efficiently. Only a few years ago the ‘institutionally standard’ warehouse would have been a 100,000 sq ft rectangular building with an office content of around five per cent. It would have had a 10m eaves height at most with a 25 – 50kN/sqm floor loading.
The site density would have been around 45 per cent and the property would have come with a 40 – 50m deep yard.
There would have been a ratio of 1:10,000 sq ft doors with around 50:50 dock level and level access and all would have been located along one side of the building. But logistics has moved on and what was acceptable then is not necessarily acceptable now.
Warehouses are not just for storage. Len Rosso of Colliers explains: “Logistics has developed over that last ten years becoming increasingly specialised, and depending on what an occupier does, will influence how and what the building should look like to be effective.
“Will it be used for general storage, some kind of fulfilment with added value services, parcel delivery, e-commerce, last mile delivery? In this day and age there are lots of different ways a logistics warehouse can be used. A utopia that fits all will never be found.”
Parcel hubs are a case in point says Kelway. “Multi-dock parcel depot facilities go against the grain of what is understood to be an institutional building. This includes; low site densities, lots of doors, extensive service yards and a highly bespoke facility to meet the occupier’s specific needs.”
A recent development has seen IDI Gazeley develop and deliver a 55,898 sq ft parcel depot for TNT/FedEx in Swindon. The building says Kelway is “highly unusual being extremely long and thin with doors on three of the four sides”.
The building features 101 loading doors giving TNT/FedEx maximum flexibility to allow a greater number of vehicles to access the facility at any given time, improving speed of operations.
TNT/FedEx chose the site in Swindon given its ease of access to junction 15 of the M4 motorway. The hub handles upwards of 20,000 parcels per night. It has 47,717 sq ft of distribution space with the capacity to accommodate 62 delivery vehicles.
“These parcel depots are not institutional in the wider sense but there is an appetite for them: they are being developed because commercially it makes sense to do so for the occupier,” says Kelway.
If that lease were to come to an end and the tenant needed to exit the building that site would have to be redeveloped because it is so customised and that is normally the rub. A building is institutional in that another occupier can use it when the previous tenant has vacated following minimal changes. The more bespoke a building especially in terms of the outward design the less institutional it is. However, the continued increase in the volume of goods and services being purchased online brings with it the requirement for the construction of specialist logistics and distribution facilities for tenants such as TNT/FedEx.
From an investors point of view the properties are typically cycle-neutral from a cash flow-stability perspective. The right asset in the right location has deep tenant demand at any point in the economic cycle because goods still need to be moved by one user or another, so well-located facilities are always leased. Demand and supply are balanced because obtaining planning for new ones is difficult.
Most parcel depot facilities have little storage so clear heights are typically unimportant. They are usually let to single tenants on triple net leases and there is an 80-90 per cent lease renewal rate because these facilities are so mission- critical. And it is on that basis that they have created an institutional following. That and the fact that because the facilities are so mission critical they are let on long leases offsetting the risk from an institutional basis.
It is hardly surprising then that developer SEGRO was so happy to go forward with the development of a 45,207 sq ft urban logistics depot at SEGRO Park Newham after parcel delivery company DPD agreed a pre-let on a 25-year lease.
Daniel Burn of dbSymmetry says: “We are seeing a lot more bespoke building requirements and because they are bespoke we need long term institutional leases [to mitigate the risk]: we are back to the 15 – 25 year lease term.”
Paul Weston of Prologis states: “The willingness of an investor/institution to invest in buildings that are not traditional – to a make a deal stack up on one of those – you have to look at a deal involving base rent and a gearing as well as on long leases and fixed uplifts. The more bespoke a building the longer the lease you would need with fixed uplifts to deliver it.”
David Binks of Cushman & Wakefield points out: “Bespoke buildings are more likely to be design and build so generally speaking you can design what you like but the underlying requirement is that it is of an institutional standard.
“A lot of the D&B facilities share a great deal of standard specification in terms of eaves height and floor loadings.”
When it comes to speculative development developers are looking to keep their buildings as flexible as possible to appeal to as wide an audience as possible be that tenant or institution.
Gareth Osborn of SEGRO says: “Occupiers requirements are becoming more bespoke and are still evolving – a developer would never go out and speculatively build a parcel hub – requirements might change in five years time with the evolution of the on-line solution. Developers and fund are looking long and hard at what they should speculatively develop.”
What they are doing, says Rosso, is “to speculatively develop the best product that is most practical in the best locations. Occupiers such as Amazon which take a lot of space may feel that the building is not ideal, for example not having a mezzanine or enough car parking, but they take the building anyway and adapt it for their needs.
“The point being is that there will never be a situation where you can guarantee to appeal to all for the simple reason that it is impossible to know exactly what each occupier wants and where they want it.”
Stewart Little, joint chief executive of Oxenwood Real Estate, says: “The developers of the current crop of warehouses are incorporating flexibility where possible but this is quite a difficult challenge to the industry. It is easy, for example, to put additional footings in to a unit’s construction to allow the increase in dock doors in the future, but one area where we see huge change is building height and this is much harder to ‘future proof’.”
So from a developers point of view, Burn says: “In terms of speculative building the flexibility is trying to keep the building as institutional as possible to appeal to as wide an audience as possible: a 100,000 sq ft building with doors along one side at a ratio of 1:10,000 sq ft is basically still the case although we are aware of a change to the generic specification of a building.”
Kelway agrees: “With speculative development we have seen that developers/Investors have tended to focus more on obsolescence of a building in terms of how would they re-let the building in the future – emphasis on sub-divisibility of a building, however, designing a building with future provision to support mezzanines in the portal frame or in the foundation design seems to be a step that is yet to be taken.”
However, Kelway notes: “It is a changing landscape and there will be evolution, particularly where land is at a premium.”
Indeed, says Weston: “Institutional standards have definitely changed in the last 10 – 20 years. The most obvious thing is that buildings have got bigger. All developers use institutional specification and Prologis is probably going to change it more than most.”
“Over the years we have changed the dimensions of the buildings we speculatively develop. It used to be a simple 2:1 ratio but over the last few years we have moved to a more longer and thinner building using a 1: 2.5 ratio, giving the opportunity for up to 50 per cent more dock doors.”
He cites the Prologis London Gateway building, which was developed in conjunction with DPWorld. The property totalling 316,946 sq ft has a length of 273.06m and a width of 102.77m giving it a ratio of 1:2.65. The long thin property has 32 dock with 10 translifter docks as well as six level access doors. It is available to let through Colliers and JLL.
Binks says the advent of the requirement for more dock loading doors is a direct response to the growth of e-commerce. “More doors allow occupiers to move more product through their buildings faster. The ratio of one door for every 10,000 sq ft is reducing with 1:5,000 sq ft not uncommon.”
Going hand in hand with increased loading facilities is the need for larger yards to accommodate increased numbers of vehicles circulating.
Little says: “Given changes in shopping behaviour and therefore the speed of goods’ movement, we are seeing yard depths needing to be as large as possible to accommodate more vehicles and more vehicle movements.”
Weston says: “I think specification on yard depth will continue to evolve as a lot of customers have this high on their list of requirements.”
For Prologis there is a push from 50m yard depth as standard to 55m but it is not uncommon to see yard depths pushing 65m. In addition there is a larger prevalence of cross-dock facilities being built speculatively.
Miller Developments, with funding of £30 million from London Metric, speculatively developed a 357,000 sq ft cross-docked warehouse on zone 7 of at Omega South in Warrington, the vast industrial development site being brought forward by a joint venture between Miller Developments and KUC Properties, in partnership with landowner the Homes & Communities Agency.
The specification of the speculative warehouse included 40 dock level loading doors (including 8 upgraded to Euro-dock hybrid doors) as well as six level access doors and two yards in excess of 50 metres.
In addition the building boasts 333,286 sq ft of warehousing space, 17,136 sq ft of offices a further 5,554 sq ft of ancillary offices. It has 15m eaves, a 50kn/sqm floor loading 152 HGV parking bays, 231 car parking spaces and an EPC B rating.
The development was snapped up by online retailer Amazon on a 15-year lease with rent reviews linked to the consumer price index. LondonMetric was advised by DTRE and JLL.
In the West Midlands Exeter Property Group and Graftongate are speculatively developing a 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.
Height of buildings seems to be a big issue and there is no doubt that over the years buildings have got taller.
Weston says: “The push for height goes on in part driven by the availability of materials handling equipment to handle it as well as the new requirement for mezzanines. If you can get more height why not have more, so you can get an extra pallet.”
Little notes: “We see and hear frequent discussion regarding cost per pallet instead of the rent per square foot. Volumetrics are increasingly important particularly within the 3PL community – hence the innovation of multi level ‘permanent’ mezzanines (eg Amazon). This is increasingly important in semi/urban locations where investors and developers are competing with alternative uses. Steady rises in institutional spec has seen height rise from 8, 10, 12, 15m to eaves and we see this increasing further. What would be a panacea for an investor would be able to adjust height but of course this is a pipe dream.”
Increases in height of buildings, where planning officers allow, is the development of mezzanines. These says Weston, “have become much more common place in particular with e-commerce occupiers however, there is a need to ensure that floors are strong enough to cope with the increased load. A lot of the time this can be put in place as a retro fit once and occupier is in place. The height of the building has a big impact; the higher it is the more mezzanines can be accommodated.”
Last year Amazon secured a 22m high facility at Roxhill and Port of Tilbury’s London Distribution Park in Tilbury.
The complex, consisting of more than 2 million sq ft of internal floor space, is being built over four floors on a 550,000 sq ft floor plate. A traditional steel frame portal construction will be used for the external envelope of the building, which runs to 370m in length and nearly 140m wide.
What was clever about the design was that the mezzanine levels have been designed to hang from a concrete-framed structure that can be removed at a future date to permit the building to be converted to a single storey warehouse. (Making it extremely institutional!)
Burn says: “As developers of speculative buildings we have to keep an eye on the costs while trying to cover all bases; if an occupier wants to put in mezzanines then that is something we are likely to push to them to organise as there are fewer occupiers with this as a requirement compared to those who are prepared to come in and rack it.”
“If an occupier went down this route, then once the lease is ended the building would need to be returned to an institutional condition in line with the usual dilapidations.”
dbSymmetry is currently speculatively developing several logistics warehouse units of between 110,000 to 217,000 sq ft totalling nearly 800,000 sq ft which recent research from Savills equates to 21 per cent of the total 3.8 million sq ft set to be delivered this year.
Speculative development is planned for sites owned in Swindon, Blyth, Middlewich, Doncaster and Bicester.
Construction for a 217,000 sq ft warehouse in Swindon is due to start in May and will form the first phase of Symmetry Park Swindon, which extends to almost 100 acres and has planning for 1.3 million sq ft of logistics warehouse space.
In addition a 150,000 sq ft unit is planned for Blyth while in Bicester a 110,000 sq ft speculative unit is being developed. In Middlewich the company is expecting to deliver a 160,000 sq ft warehouse and in Doncaster a unit of 150,000 sq ft is being pushed forward with the capacity to extend by a further 100,000 sq ft.
Sustainable features are more common nowadays and most occupiers and indeed institutions expect these as standard.
Weston says: “For a speculative building we would be targeting BREEAM very good – although more often than not we go to excellent. With our latest buildings we are looking to target very good and get an EPC A rating.”
According to Rosso: “Very Good to Excellent is the industry norm and from an operative perspective that can provide great economies from lighting through to heating.”
Burn says: “Some occupiers with big names and international standing want to push that further and are asking for more green features to be included such as grey water recycling and photo-voltaics. Developers are accommodating that wherever possible.”
Jonathan Priestly of Baytree Logistics Properties says: “Sustainable innovations are at the core of our development strategy.”
The company, a stand-alone pan-European logistics and industrial development platform established by AXA Real Estate Investment Managers in 2015, is pushing forward with two schemes in the UK; one in Dagenham and the other in Luton.
The first phase of two units of 68,976 sq ft and 44,778 sq ft at the Dagenham scheme is being built speculatively with both units expected to target BREEAM “Excellent” and EPC “A” rating.
As part of its commitment to sustainability, Baytree has also established a collaboration with the International WELL Building Institute (IWBI) and BREEAM to develop a world’s first WELL Certification pilot in the industrial property sector.
The IWBI standard is the first building standard to focus on the health and wellness of occupiers and demonstrates the connection between buildings and how they impact on the individual’s health and wellness.
“The collaboration between Baytree, BREEAM and WELL will result in a certification label, which places both sustainability and human health and wellbeing at the top of the agenda.”
A variety of sustainable building features will be included at Dagenham, such as external gym equipment, solar photo-voltaics linked to battery storage, electric vehicle charging stations, air source heat pumps, enhanced use of recycled and recyclable materials, prefabricated building elements, low energy LED lighting and a super airtight, insulated building envelope, all of which will be constructed within an enhanced landscape environment.
Priestly says: “We have been challenging our suppliers, designers to seek a one per cent gain on what they do whether it is cladding or lighting. Once those come back to the table you get a surprising improvement across the board – very similar to the work on performance improvement by British Cycling. These initiatives are embedded in to our basic building specification.
“We are always looking to innovate and move the [sustainable]agenda forward and if other opportunities come we will be happy for them to be included at no extra cost to the customer.
“Total costs rather then rent free period and headline rents are becoming more and more important as part of the overall property deal.”
Stuart Brown of building envelope specialist CA Group says: “We are having to design buildings to be more versatile in terms of the building envelope to cover a wider and wider range of potential occupiers. With specialist cladding a building for example can take in a larger temperature range from chilled to ambient allowing institutions and developers to appeal to a wider audience of occupiers.”
Cladding can also help increase the energy efficiency of a building and with energy costs only expected to increase this becomes an increasingly important design feature.
There are other areas influencing investment decision-making says Little and these include the availability of power and the availability of workforce.
The former being driven by a central government agenda (eg emission zones), the latter being of concern for the occupiers and the significant fixed cost problems of ‘commuting’ staff from farther afield than the immediate town/catchment.
“This causes a trade off between the prime locations and the cost and availability of labour for the occupier.
“However,” he says, “where there is less flexibility in our opinion is geography. Traditional core locations, such as DIRFT, Warrington and Hams Hall, are still favoured even if the unit in the non-core location has a long lease. Institutional investors are more accommodating and more accepting of bespoke or non-standardised buildings but these need to be within traditional locations. What is not seen (yet) is UK institutions absorbing irregular buildings in non-traditional locations.”
Jeremy Bishop, joint chief executive of Oxenwood Real Estate adds: “Just as occupiers have subtly different ways in which they are willing to occupy buildings, so investors have subtly different risk criteria.
At macro level, it can be argued that investor appetite is many multiples of the available investment stock, stray off the core principles however, and there is a market but it is [much]thinner.”