Strong take-up and strong demand – how is the region coping as one of the UKs hot spots? Liza Helps investigates.
Of the total first half take-up of 11.5 million sq ft, regionally the Midlands secured the lion’s share according to BNP Paribas Real Estate, with the percentage share increasing to 43.1 per cent from the 36.7 per cent recorded in 2016.
Indeed the latest Prime Logistics report from Gerald Eve, points specifically to the West Midlands as the engine of take-up, with the second quarter of 2017 seeing 29 individual deals totalling 3.5 million sq ft transacted.
“It’s the region’s strongest first half performance to date,” says Ranjit Gill of Savills, whose Big Box Briefing research indicates that the first half take-up of units more than 50,000 sq ft, was 58 per cent higher than the same period last year when some 2.57 million sq ft was transacted. This year’s results are also 95 per cent above the long-term average of 2.08 million sq ft.
Take-up still seems to be going strong with Robert Rae of Avison Young noting that since June there are a number of properties under offer promising an equally strong performance for the third quarter of the year.
Deals driving the take-up figures include Logicor’s letting of its 645,000 sq ft building in Tamworth to XPO Logistics in May for a contract with Premier Foods.
The transaction involved the current occupiers Hermes Parcelnet and Euro Car Parts surrendering their leases, the redevelopment of the middle bay of the three-bay unit and the raising of its eaves height adding a further 50,000 sq ft of Grade A warehouse space to accommodate XPO’s new business contracts. Works are due to complete in January 2018.
The building was split in two by Prologis in 2013, with Hermes taking the 336,000 sq ft first unit and Euro Car Parts renting the remaining 258,000 sq ft. The warehouse was acquired by Logicor from Prologis in February 2014.
In other deals car manufacturer Jaguar Land Rover acquired the 550,000 sq ft Tyrefort Dunlop warehouse in Minworth, while Neovia submitted a planning application to build 1.2 million sq ft of distribution warehousing in Desford at the beginning of the year.
More recent deals have seen LondonMetric agreeing to a 137,000 sq ft build-to-suit with tyre manufacturer Michelin in Stoke; securing a 15 year lease at a rent of £5.35 per sq ft. Construction of the new facility is expected to complete by the end of this year.
Demand in the region seems to be bucking the national trend. Carl Durrant of JLL says: “Nationally, demand fell back in the first half, but the opposite was true in this region. The first half take-up matched the figures for the second half in 2016, and were also up a very impressive 25 per cent on the first half of last year, so it’s very likely that this could be an all-time record year.”
“Demand for stock in the region as a whole remains high,” says Alex Eagleton of Harris Lamb.
Indeed according to Jon Ryan-Gill of Knight Frank: “There are still a number of major requirements in the Midlands to be satisfied including Nissan, JLR, Mattel and new entrant to the UK market Alibaba, which will translate into future take-up.”
Goodman’s managing director Charles Crossland notes: “We continue to see a significant lack of available high-quality distribution and industrial space throughout Coventry and the Midlands in spite of strong, undiminished levels of demand from occupiers either seeking to relocate or expand their operations.”
Rui Nobre, chief executive at Griffen Capital is in agreement: “The demand we are seeing from a range of occupiers for Grade-A space remains strong.”
So much so that Griffen is commencing a further 118,000 sq ft of speculative development in two units of 51,500 sq ft and 66,500 sq ft respectively, at its 59-acre distribution park, WDP40, in Wellesbourne, Warwickshire.
The speculative development of Units 4 and 5 represents the final phase of development at the park. Griffen has commenced a significant upgrade to the site wide infrastructure and master-planning at the estate, including improvements to the roads, walkways, lighting, security, landscaping and access.
Earlier this year Griffen agreed a 133,000 sq ft Grade-A warehouse letting at the park to a luxury British sports car manufacturer. This was followed by a pre-let deal with Amethyst Group for a 210,000 sq ft unit. The unit achieved practical completion in June and Amethyst has commenced with fit out works ahead of its planned occupation. Letting agents are DTRE and Lambert Smith Hampton.
Research from CBRE says: “There continues to a be steady stream of larger occupiers seeking big box off-market opportunities on sites and units in the Midlands, and placing enquires even on schemes that have yet to secure planning permission.”
Observers of the big box scene in the Midlands have repeatedly expressed concern, in recent years that the gap between demand and supply had widened too far.
Eagleton says: “Demand [is] outstripping supply, and though developers are beginning to tackle the shortfall with a number of new 50,000 sq ft + schemes being due for delivery in 2018, there is still very little development especially of smaller, multi let schemes.
“Indeed multi let estates that have historically had higher voids are now approaching full occupancy, with a significant number already fully let. Popular estates to have reached full capacity in the past few months include Kelvin Way Trading Estate in West Bromwich, which is fully let for the first time in more than a decade, and Baker House Trading Estate in Lye, with Maybrook Business Park in Minworth at a record low void of c. 2 per cent.”
Rae says supply is limited around Birmingham and the M42. “The market is suffering by not having stock available in the right place developer and funds are responding to that but are hampered by land limitations.
“Sites are full such as Minworth, Rugby Gateway and Birch Coppice. Goodman’s Lyons Park is all but complete with a recent deal in January to Amazon.”
Goodman is developing the final unit on the scheme, a 135,000 sq ft unit to be known as Lyons 135, the facility is expected to reach practical completion shortly.
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.
According to Rae: “In terms of supply in the West Midlands there were 22 units complete and available in July comprising 3.73 million sq ft of Grade A space and one of those units already let.”
Household appliance company Beko has taken the last two distribution units at Birch Coppice Business Park, Tamworth, Staffordshire, from Aberdeen Asset Management.
It has agreed 15-year terms on the 282,000 sq ft and 63,000 sq ft units, at rents of £6.20 and £6.74 respectively.
Beko currently has bases at Heartlands, Birmingham, and Hams Hall, Warwickshire. The move to Birch Coppice allows the white goods maker to its consolidate its operations on a single site and also allows for expansion.
Aberdeen acquired the two assets, speculatively built by Birch Coppice developer IM Properties, at the end of last year.
Richard Meering of letting agent CBRE says: “These lettings have further eroded new build warehousing stock in the region, which is now at worryingly low levels.”
However, Durrant reports a sharp increase in available new space across the Midlands as a whole, between last December and the end of June 2017.
“Supply was a third higher in just six months, which I can’t recall happening before, after a surge in speculative development – particularly in the West Midlands,” he added.
“As a result, the vacancy rate in this region has edged above the national figure of 6 per cent, with 8 per cent in the East Midlands and 7 per cent in the West.”
Savills agrees that developers have responded to the previous chronic lack of industrial stock in the West Midlands, with available space increasing 16 per cent since the end of 2016. This includes seven speculatively developed industrial units totalling 1.5 million sq ft of which the largest is the 372,000 sq ft M6DC in Cannock, which is being brought forward by Exeter Property Group and Graftongate. 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.
Speculative schemes coming forward or close to completion include: M&G Real Estate, Rigby Group and Evander Properties’ 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, 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.
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.
LondonMetric is speculatively developing a 140,103 sq ft unit at Campbell Road in Stoke. 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.
Despite these levels of speculative development, Savills highlights on-going demand for build-to-suit industrial units, with 1.7 million sq ft of the latter transacted in the West Midlands in the first half of 2017. This equates to 42 per cent of total take up for the period. With only three units over 200,000 sq ft available, Savills says build-to-suit has been the only viable option for industrial occupiers with large requirements.
Gill says: “With industrial take up in the West Midlands already eclipsing the annual long term average, it is clear there is strong occupier demand for the right product in the right location. The region has a development pipeline of approximately 740,000 sq ft under construction, however all of these units are less than 200,000 sq ft. As such, there is certainly an opportunity for owners of well-positioned sites to build larger units and cater for this demand.”
Little land has been traded but what has been has gone for what the market considers ‘steamy’ prices. It is thought that Prologis paid in the region of £700,000 an acre for its 16-acre site next to Birmingham Business Park, to 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 is thought to be considering speculative development.
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.
David Binks of Cushman & Wakefield says: “There are sites but not all of these are immediately ready for development.”
Binks notes that St Modwen has a 60-acre site it is bringing forward and there is still the 197-acre greenbelt Peddimore site in Birmingham. The site is being brought to the market through Bilfinger GVA.
Even if the sites do get brought forward as Jonathan Wallis, development director at db symmetry, says: “Planning continues to be the bane of the developer’s life – if there’s one action for the Combined Authority it has to be to help make planning a more straightforward process.”