Industrials set the pace

The buoyancy of the industrial market has spurred investment deals, in particular in the business parks and estates around Southampton. For example, Axa Real Estate Investment Managers has sold the 4,645 sq.metres (50,000 sq.ft.) Solent Gate Industrial Estate, Fareham through Lambert Smith Hampton to Threadneedle Property Unit Trust for £3.82million, or a yield of 8.2%. Axa’s Ian Pollard commented: “The sale crystallises the value we have created and allows us to look for new investments where we can add value for our client.” In Eastleigh, Oceanic Estates has paid Craigard Eastleigh LLP £3.8 million for the 9,290 sq.metres (100,000) Avalon warehouse in Parham Drive.

The warehouse is sublet to the Jamie Oliver Group and was an off-market transaction. Jerry Vigus, from Lambert Smith Hampton commented: “We have stayed close to this property, knowing that it could potentially be bought. We indicated that a quick decision had to be made and therefore approached Oceanic Estates, knowing that the business had the resources available to buy the property and move quickly. We were then able to negotiate terms and purchase the unit within 14 days of agreeing a price.”

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Cleaning up to Success

A tired industrial estate of 24 units at Carter’s Yard, Kiln Farm, Milton Keynes has been transformed by the property group Kindale after advice from agent Douglas Duff and had immediate success with new lettings.

The estate had suffered from high vacancy rates until Douglas Duff’s Graham Young produced a comprehensive improvement plan. Kindale director Peter Hughes said: “He gave us chapter and verse about what was needed to turn the situation around and I am delighted to say he is being proved right.”

So far, 5 of the smaller units have been taken. Young said: “If you make the environment attractive not only does it appeal to new tenants, but existing tenants begin to take pride in their surroundings.” All the units have had their external cladding cleaned, landscaping has been refreshed and additional car parking created. Internally, the refurbishment has transformed the appearance and facilities of the units.

Bouncing back after Buncefield

Hemel Hempstead has experienced a significant increase in industrial and warehouse activity this year, reversing a period of slow trading. One reason for the stronger performance,“ said SEGRO’s Chris Davies, ”is the town’s wide industrial and logistics base, from local businesses to national distribution companies, as well as a broad range of available units from small sizes to 37,160 sq.metres (400,000 sq.ft.).”

Of particular importance was the letting by SEGRO of 8,198 sq.metres (88,250 sq.ft.) to Gyron Internet, the specialist data centre provider at 150 Maylands Avenue, which, together with Boundary Way, forms the heart of the industrial market in Hemel. Brasier Freeth and CB Richard Ellis acted for SEGRO.

One of the reasons for the deal was SEGRO’s specialisation in power, fibre and security needs of the industry. This has led to the property company becoming one of the largest providers of data centre properties in the UK.

To cope with Gyron’s needs, SEGRO has provided an enhanced resilient 8MVA power supply to meet specialist requirements as well as refurbishment to make the property suitable for a high tech company.

While 150 Maylands Avenue is the centre piece of the Maylands Woods Estate, there has also been increasing demand for purpose built units on SEGRO’s adjoining Vision site in the past year, with units let to Maritrans , South Midlands Hire and Centre Stage. Davies said: “Activity in Hemel Hempstead has remained robust this year, despite the difficult economic environment. The significant letting to Gyron highlighted SEGRO’s knowledge and expertise in delivering highly specified requirements for data centre occupiers, but also reflected the increasing strength of the local market.”

Two other deals reflect the improvement in Hemel. Through Lambert Smith Hampton, Kaiser & Kraft have leased an office at Zodiac 5 and the Serviced Office Group has taken on 3,041 sq.metres (32,735 sq.ft.) at Westside in Apsley. Lambert Smith Hampton’s Claire Madden said: “As demand for space continues we are confident that Westside will attract a lot of interest from office occupiers.”

More space for Amazon

Amazon continues on its massive expansion which has led to a series of large industrial lettings in the UK. The latest deal is that the online bookseller is negotiating with Murphy & Sons for a 43,200 sq.m. shed, “Mammoth,” in Hemel Hempstead which was partially destroyed by the Buncefield oil depot explosion.

Murphy acquired the site from Blackstone Real Estate Partners in 2009. To understand the scope of Amazon’s expansion, this follows it taking the 65,030 sq.m. Flair building on Gazeley and Metlife’s G.Park, Rugeley and it is negotiating with Prologis for a much larger shed at the Widnes Freight Park, Cheshire.

Hitting the target

A vote of confidence in Target Park, Redditch has come from removals and storage company, Johns of Studley which has added a further unit in the second phase of the £12 million development.

This adds to its initial unit where it was the first company to move into the estate. John Finn of Johns said there has been a strong growth in business and gave the example of its client Nissan where “car production has never been busier.” Joint agents are John Truslove and KGA. Anderman & Company is also expanding by relocating its entire Midlands operation to Xylem Development’s Cortex scheme at the Hartlebury Trading Estate near Kidderminster. The company is buying a unit for its businesses which focuses on the distribution of industrial ceramic products and specialist engineering support services for high voltage electricity substations.

Winning formula

Another well located industrial estate in the Midlands is the 25,959 sq.m. Kelvin Way Trading Estate, a mile from Junction 1 of the M5 at West Bromwich. The refurbishment has been a success and pulled in a range of companies, such as Reliant Products, Safety- Kleen and Joseph Joseph. The estate is being marketed by Bulleys and Harris Lamb. Adam Priest of Bulleys said: “The estate has proved hugely popular with

a wide range of businesses, including manufacturing, government departments and storage operators. One of the occupiers, Reliant Products, found the location so suitable for its staff and customers that it has, said the company’s Managing Director, John Allen, “already expanded on the site and taken new units to accommodate our growth.”

New Road drives industrial demand

After a steady performance in 2010, the industrial market in Bedford is likely to benefit substantially from the new bypass around the town which links the M1 to the A1. “The road has become a real plus point for the town,” said Andrew Clark of Douglas Duff, ”and we hope the general expansion of manufacturing in the region will add to this positive trend.”

There has been an expansion of “demand for large industrial buildings and those suitable for trade counters. We are currently hoping to achieve the letting of a property of 12,449 sq.metres (134,000 sq.ft.).” The majority of the deals are around 1,858 sq.metres (20,000 sq.ft.) in a market which topped 69,675 metres (750,000 sq.ft.) in 2010. That is well ahead of the previous year although down on the 111,480 sq.metres (1.2 million sq.ft.) of 2009.

James Haestier of Colliers International said: “The market has been tough, but, because there has been some quality stock available, there have been deals. However, supply has dried up in the past 18 months. Now, occupiers will struggle to find a building of 18,580 sq.metres (200,000 sq.ft.) or more.”

The problem lies in the lack of speculative building which is due to the government’s empty rates legislation as well as developer caution in the face of a slow economic expansion. Even so, Bedfordshire is likely to see some sizeable schemes soon, driven by pre lets. Gazeley, with ICP Asset Management, for example, has a 32 acre site at Boscombe Road, Dunstable that could take a 69,675 sq.metres (750,000 sq.ft.) shed. Haestier says the bulk of the demand for larger sheds is coming from food and discount retailers.

An analysis by Capita Symonds highlights a resurgence of the small and medium enterprises (SMEs) in the manufacturing sector on the back of a competitive rate for the pound.“These smaller more nimble enterprises are competing on a global scale with both speedier delivery and lower costs,” it said. It notes that such companies are spread throughout the country and are not always in the strongest established industrial areas, helping rural areas and other industrial markets, a point made by Andrew Clarke of Douglas Duff for Bedfordshire.

Industrials beat offices

In Watford the market for offices is confined to the smaller sizes, while demand in the industrial sector is more broadly based. That is the experience of Peter Brown of Brasier Freeth. The agency has recently let two 929 sq.metres (10,000 sq.ft.) offices in 41-43 Clarendon Road, the type of deal that is the staple diet of the market.

Brown said: “There is more activity but the supply of Grade A offices is declining. The industrial market is more active and we have recently sold September Properties’ 5,853 sq.metres (63,000 sq.ft.) Eclipse after refurbishment which is now fully let.”

Manufacturing surge brings new factories?

Substantial changes are taking place in the industrial market as retailers and manufacturers rationalise their activities. The surge in manufacturing output over the past half year is clearly leading to a shortage of capacity as companies find themselves banging against their productive ceiling. Also, retailers are in a fiercely competitive market where cost savings are essential, hence new distribution facilities. The shortage of Grade A industrial space is becoming widespread throughout the country which is being aggravated by a lack of speculative development for the fourth quarter of 2010, said DTZ. Since then, the situation has worsened, judging from regional reports.

DTZ’s Mike Baugh commented: “The Yorkshire region, with its excellent infrastructure and labour supply, continues to be successful in attracting large scale distribution occupiers, With take up of speculatively built Grade A space continuing, and a lack of new developments, the window of opportunity for occupiers to secure significant incentives is closing. Consequently,it is likely that we will see a return to design and build leddeals.”

Take up of industrial space in the final quarter of 2010 in Yorkshire was 36,231 sq.metres (390,000 sq.ft.) bringing the annual total to 278,700 sq.metres (3 million sq.ft.). DTZ said non food retailers were dominant in 2010 with the

region pulling in national distribution hubs. “Yorkshire and Humberside also benefited from inward migration as higher rents and a shortage of supply in the north west pushed companies eastward.” The government is also giving a helping hand to the industrial property market opening up its supply chain to smaller organisations. Mike Baugh said: “The announcement that the government intends to award 25% of its contracts to small and medium sized businesses (SMEs) presents a major opportunity in the market where the supply chain has traditionally been closed to SMEs.”

He believes that this will provide a boost to the Yorkshire market “which in a number of areas is performing well, with supply becoming limited. It is likely to encourage demand and possibly a return to small scale speculative development.”

Need to regenerate

An improvement on the market in the M3/27 area is on the cards as the region moves further away from the recession. That is the prediction of Mark Clancy of London Clancy who said: “There is more confidence in the market compared to a year ago and improving sentiment as the rebuilding of the economy continues. The pace of the recovery should also pick up, particularly towards the end of the year.” Clancy also warns of some problems, such as the availability of bank finance and the impact of government spending cuts. “That said, there will be great value in the market of the M3/M27 corridor for funded property owners and occupiers, especially in relation to secondary opportunities.” This year’s challenge, Clancy suggests, is the regeneration of some of the 1970s and ’80s business areas and the promotion of new development. That will require “strategic vision.”

Furthermore, while the industrial and warehouse sector will remain stable, that for offices “will move forward from the disappointing 2010 levels as occupiers seek to take advantage of low second hand office rents and substantial incentives.” Basingstoke should benefit substantially from the improved market climate. Among the deals last year Hammer, a specialist storage distributor, signed a new lease on a 1,858 sq.metres (20,000 sq.ft.) unit at Valad’s Intec Business Park for ten years at £107.60 a sq.metre (£10 a sq.ft.). As part of the deal, Valad will be investing in new building services and air conditioning upgrade. Valad is also investing in the refurbishment of part of Building 2 on the business park as part of a wider asset improvement programme.

Rents to rise at Heathrow

An increase in rents for industrial and warehouse space for Heathrow and the Western Corridor is predicted by Jones Lang LaSalle for 2011. The agent expects key Grade A sites at Heathrow to rise to £150.64 a sq.metre (£14 a sq.ft.). JLL’s Bridget Outtrim said: “The immediate vicinity of Heathrow’s cargo terminal is an exceptional location where, to date, there has been no premium stock available to set rents but there are two key sites coming through for development which could push up pre let rents.” While food and drink are the key occupiers in the logistics market, JLL notes “recycling and waste disposal businesses have emerged in 2010 and their need for large sites and open storage land, away from residential areas, possibly with railway access, will persist.”

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