It’s been rumoured and its been talked about but is it likely to happen?
All summer long there was a palpable sense of expectation; the speculative shed was on its way back, not a trade counter development of ten units totalling 150,000 sq ft, but a big shed. A development of some 310,000 sq ft was on the cards.
But it never happened.
Market speculation had SWIP poised to fund the building at Roxhill’s Brackmills Point scheme in Northampton, a mere 4.5 miles from Junction 15 of the M1 motorway. The 25 acre fully serviced site had planning for 420,000 sq ft of warehouse space with a maximum single unit of 310,000 sq ft.
However, it is said that Roxhill got a better offer from German logistics company Dascher who has swept in on a freehold turnkey deal for a 250,000 sq ft unit. It already has a multi-user warehouse at Brackmills with 8,000 pallet spaces which it occupied in 1999. The thought is that this facility will be used to further Dascher’s expansion plans.
There were rumours before that funds and even developers were considering speculative development. Andrew Aherne of Lambert Smith Hampton had said that there were three speculative schemes brought forward in the North West earlier in the year but in all cases the schemes were either pre-let to a degree or pre-sold prior to completion and in some cases before construction even began to take place.
But it is the fact that a fund is believed to have seriously considered a speculative development of this size in the golden triangle that clearly shows a change in attitude towards the distribution warehouse market, whether anything will be done depends on how confident both developers and funds feel regarding the future prosperity of that market.
There is no question that in many regions there is a distinct shortage of Grade A supply. Mark Bassnett of Liverpool City Region LEP says: “The take up of big sheds in the North West has been close to 200 per cent of trend over the last three years, much of this being in the Liverpool City Region and its hinterland. The result is a shortage of large new units available in the market.”
Tony O’Keefe of DTZ says: “The North West has less than a year’s supply at current take up levels and that means for occupiers that where before there were a series of units to consider and landlords had been prepared to offer flexible terms and generous incentives because of the competitive situation, now there is no available standing accommodation and the advantage will be with the landlords.”
It’s not just the North West, Nigel Godfrey of Gazeley says: “There is indeed a shortage of new available stock, as most of the pre-crisis speculative stock has been taken up and nothing constructed to replace it. We have several manufacturers and 3PLs chasing our only remaining vacant unit at Chatterley Valley which will be let soon.”
Richard Meering of CBRE points out “There has been a 33 per cent reduction in new stock availability as of the half year that will continue to reduce. There is an increasing realisation from occupiers that there is no new space.”
Frustration
“There is a sense of frustration,” says Lloyd Spencer of Lambert Smith Hampton, “not that there is an increase in demand as such, more that there has been a continual reduction in supply. Anybody running round with a requirement of say 200,000 sq ft between the M25 motorway and Northampton has only three buildings to choose from. At MK Centro, where we might have expected two to three serious enquiries, we have had eight or nine.”
Simon Lloyd of DTZ notes: “As that [shortage] becomes more acute the building owners will become more aggressive and tenants will find that costs will be rising – it’s normal supply and demand economics.
“To be fair the tenants have had a good time in the last four or five years in terms of building procurement but the balance is now reverting more to a landlords market.”
Lloyd Spencer of Lambert Smith Hampton says: “Occupiers will have to change their MO, those landlords that are well advised should be thinking seriously ‘Why grab a soft deal now?’ They can afford to be more aggressive and capitalise on that. We are on the verge record growth [in the property industry] if not seeing it already.”
Colliers’ most recent Logistics and Industrial Big Sheds Rent Map, which looks at 12 areas across the Midlands saw rents rise year on year between 2011 and 2012 in eight out of the 12 locations.
Birmingham, Coventry, Northampton, Stafford and Stoke-on-Trent, all saw a rent rise of 25 pence per sq ft while land prices rose by £25,000 an acre with the exception of Northampton, where values rose by a third to £300,000 per acre.
Simon Norton of Colliers says: “The fact is, we are running out of big sheds in the Midlands. You don’t need a degree in economics to work out that demand is outstripping supply and that this will put pressure on rents and land values.
“As a result, we will see secondary rents, largely static this year, move in the same direction as prime rents next year.”
It’s not just a general increase in rents says Alex Carr of Lambert Smith Hampton who has noted that the vast majority of deals done on existing stock in the West Midlands this year are all with rent levels over £5 per sq ft in comparison with last year where the majority were below £5 per sq ft. “It’s also about lease lengths.”
Looking at the third quarter of 2012, he says deals done on property in the West Midlands have seen a return of the institutional lease on occasion. He cites deals on leases of 15 years at The Hub in Birmingham and Rivet near Coventry as well as a 25 year lease on a property at Parkhouse Interchange.
As well as rent rises and lease length increases incentives have been hardening too, all giving rise to an increased confidence in the return to speculative development.
“Surely,” says Steve Williams of Lambert Smith Hampton, “this has to fuel the speculative process – a good building in the right location.”
Jon Sleeman of Jones Lang LaSalle agrees: “There is a case now for speculative development in certain regions: the golden triangle or the South East potentially.”
In terms of timing Lloyd says it is unlikely to happen in the short term. “However, never say never, there may well be some exceptions to that if a fund or developer has some cash…”
Tim Johnson of Jones Lang LaSalle reckons that any speculative development will be generic. “Developers and funds could be comfortable developing a generic building in the right location as it could be re-let but moving away from generic they would be a little bit more concerned.”
He says that warehouses built speculatively would not be much larger than 350,000 sq ft because anything over that size and tenants tend to want something more bespoke.
Lisa Fitch of BNP Paribas agrees: “Speculative will be particular.”
“Any speculative development that does occur,” says Andrew Jackson of North Rae Sanders will be far more cautious than in previous years. It will be nothing like the scale we saw in the mid 2000s. The majority of companies will have to satisfy requirements by going down the D&B route.”
But with no speculative development then all sites are equal, thus in competition with each other for what D&B contracts are available. As these take a long time negotiate it will be the developer who can deliver that fastest who will secure the tenant. With that in mind, Mark Webster of Cushman & Wakefield says it is hardly surprising to note that developers are investing in getting their sites oven ready and spending a lot of money on infrastructure.
“Developers are de-risking their sites to be more certain of deliverability.”
Roxhill is spending some £25 million on securing infrastructure to its Gateway Peterborough site just off the A1(M) at Junction 17, while Gazeley announced that it has started on a £5.2 million investment in infrastructure and enabling works across its UK portfolio.
Goodman is ploughing £12 million into infrastructure at Phase 2 of its Hinckley Commercial Park in Leicestershire.
Developers eye view: SEGRO- Not a lot of people know that…
According to Gareth Osborn of SEGRO not a lot of tenants in the UK realise that SEGRO is in it for the long term and actually wants a relationship with its tenants that goes beyond the signing of a lease and collecting of the rent every quarter day.
“We are open to business but one of the things that holds us back is that our customers don’t expect us to be accommodating. Rather bizarrely in the past we dealt with a customer once every 5 – 10 years but life has changed a lot and that’s our challenge.”
SEGRO wants to help its customers to foster a longer term relationship and to that end will go a long way to be flexible, not just with a single building in isolation but across its whole portfolio.
The SEGRO portfolio comprises £5.1 billion of property assets concentrated in and around major conurbations and transport hubs such as airports, ports and transport networks serving 1,600 customers across a range of industry sectors and geographies.
Up until recently the Continental logistics portfolio consisted of larger sq ft properties than those in the UK but after acquiring the UK Logistics Fund for £314.7 million in a joint venture with Moorfield, Osborn says the company can now offer equitable properties across the whole of Europe within its portfolio.
The UKLF portfolio, now known as the Logistics Property Portfolio, comprised 14 warehouse units plus one development site in 12 locations on or near main arterial roads in established distribution areas across the UK. Two of the buildings were vacant.
Logistics Property Partnership Sheffield, formerly known as Blade, totals 412, 519 sq ft and is located half a mile off the M1 at junction 34 within the Sheffield City Region Enterprise Zone. And Logistics Property Partnership Corby, previously known as Crackerjack, is a cross-docked logistics facility offering 528,108 sq ft of space.
“We are looking at the cumulative impact of our customers across our whole portfolio not just in one building and because we tend to retain our properties unlike some funds that will sell on a building once let we can be more accommodating across the lifetime of a customer.”
Black & Decker has been a tenant on the Slough Trading Estate for nigh on 85 years and it currently occupies seven building. Sometimes there have been more and sometimes less, but by keeping the communication open SEGRO can respond quickly to its needs. It is this flexibility that SEGRO wishes to bring to its whole portfolio.
“If there is a deal to be done we will look at the overall impact on the portfolio rather than the implication of that one property in isolation. For example if a customer had a big building in France, but its needs changed and it was interested in a UK building, in theory we could wash away the building in France. We may not be able to do that every time as the deal would have to work for both of us, but we have done it in the past.
“We want to be flexible but won’t give away the crown jewels. We are offering a corporate real estate solution and there is definite scope in this sector to bring that flexibility forward.”
In these harsh economic times a degree of flexibility from one’s landlord as one’s business changes has to be a welcome relief. When probed Osborn says there is even scope for customers to re-gear leases and lease terms even if that lease has yet to come to renewal.
“Under one fund you can be flexible across a whole portfolio – that has to be an advantage.”
Case study- Colliers to market Co-op sites
Co-operative Estates has appointed Colliers International to dispose of surplus warehouses totalling more than of 3m sq ft across 15 sites. The sites include ambient, chilled and frozen warehouses in the south west, the Midlands and Scotland. Sizes range from 10,000 sq ft to 320,000 sq ft.
The sites, providing a range of ambient, chilled and frozen warehouses include properties in the South West of England, the Midlands and Scotland, ranging in size from 10,000 sq ft to 320,000 sq ft.
Colliers will act as lead agent on the portfolio, working with existing joint agents.
Geoff Player, director of commercial and investment property at the Co-operative Group says: “These properties are well located and offer a wide variety of warehouses throughout the country that will appeal to a range of distribution and industrial occupiers.
“The fact that the portfolio provides a mix of ambient, chilled and frozen space will undoubtedly widen their appeal. Co-operative Estates has already disposed of more than 700,000 sq ft of surplus industrial property in the last 12 months and we are looking to build on this momentum.”
The Co-operative has been involved with a major acquisition and development programme since the purchase of Somerfield in 2008. The first of these new facilities are now open at Newhouse, Birtley and Andover comprising some 1.25m sq ft.
Avonmouth, close to J18, M5 has recently completed providing 435,780 sq ft and they are on-site in Castlewood (J28 M1) for a further 477,000 sq ft which is due to open in early 2013.
Iain Davidson, director of logistics & industrial at Colliers International, says: “The properties being offered in the portfolio provide an excellent fit for the distribution and wider industrial sectors. The sites are very well located and offer a wide range of floor space and facilities that will be attractive for an extensive range of occupiers.”
Eastern promise- Gateway plan
Roxhill is investing some £25m in infrastructure at Gateway Peterborough, which will see an additional 5 million sq ft of business space in the city. Gateway Peterborough is a 240 acre distribution and manufacturing park located at junction 17 of the A1(M). There is planning consent for 5 million sq ft of commercial use with buildings from 95,000 sq ft up to a maximum of 1.3m sq ft in a single building.
Patrick Stanton of Bidwells, says: “The site is ideally situated geographically just off the A1(M) allowing easy access to the North and South and just north of the A14 which provides access to the east coast ports and also and west to the Midlands. We are already in discussions with a number of local and national occupiers who we hope will conclude negotiations with us during the coming months.”
Burbage Realty and North Rae Sanders are joint agents on the development with Bidwells.
