A Warning of Shortages

While the industrial property market in the region has displayed admirable stability, the lack of new development means that shortages are already occurring.

That is the message from Mike Baugh of DTZ who said: ”As the market improves and take up of vacant stock continues, we move closer to the situation where there is a shortage of some sizes of units. This is intensified by a shortage of land and a limited number of developers holding back speculative development.”

He suggested that the problem in Leeds was for companies seeking units of below 1,394 sq.metres (15,000 sq.ft.) bringing a ”hardening of rents and a reduction in incentives.” Even so, Yorkshire offers a higher proportion of Grade A industrial space than most of the UK.

Baugh said: “The window of opportunity for occupiers to secure an attractive deal is closing and they will have to be more organised and forward thinking in their search for new premises.”

Nationally, reports Jones Lang LaSalle, occupier demand in the first half for big sheds weakened and this continued in the three months to 30 September. But “investor demand is strong, concentrating on prime stock let to strong covenants on long leases.”

Two examples of recent industrial deals come from Knight Frank. It acted for Havells Sylvania who sold a 12,727 sq.metres (137,000 sq.ft.) warehouse in Shipley to Card Factory. At Harley Business Park, Bradford it has let 1,858 sq.metres (20,000 sq.ft.) to Barrett Steel.

Another significant industrial transaction in Yorkshire is provided by the bus manufacturer Optare which is amalgamating its three factories in Leeds, Blackburn and Rotherham into one 13,006 sq.metres (140,000 sq.ft.) unit at Sherburn Distribution Park, Sherburn in Elmet. This will be the first new bus assembly plant in the UK for 40 years.

Paul Mack of DTZ said: “The latest addition demonstrates the capabilities of the area as a hot spot for manufacturing and distribution in the Yorkshire region. The Sherburn Industrial Estate benefits from a huge power supply which is the key to the manufacturing sector.”

Crowing King's Norton

SEGRO’s King’s Norton Business Centre has proved that a well managed business park will pull in the tenants.

This year has seen a steady stream of new occupiers. Recent growth in business has prompted Sterling Technical Engineering to consolidate its three existing locations into one unit. Similarly, a growth of business has sent Mechatronic Solutions, a civil and structural engineering practice, into a larger unit at the park.

SEGRO’s Jane Leedham said: “We have invested in making the centre a pleasant and secure place to work and we’re confident that we provide the premium business space in south Birmingham.”

Lively Telford

i2r Packaging, through Bulleys, has bought the 5,479 sq.metres (58,977 sq.ft.) former UK Greetings facility at Hortonwood 30. i2r manufactures a range of wrinkle wall and smooth wall semi rigid aluminium foil containers used throughout the food industry and have relocated to Hortonwood from Stafford Park.

This is the second deal by Bulleys recently and follows the letting of the 6,712 sq.metres (72,245 sq.ft.) Premier House, Hortonwood 7 to the logistics company AMCO Services. Barry Lumsden of AMCO said: “Our partnership agreement with Force Protection Europe Limited has enabled us to finally put down firm roots in the Telford area, bringing new employment and establishing another AMCO 3rd party logistics facility.”

Bulleys also acted for Prospect Estates in the first sale at its Epic Park, Halesfield Industrial Estate, where Western Power Distribution has taken 1,950 sq.metres (20,990 sq.ft.). Prospect bought the former Plastic Omnium premises and divided it into a separate industrial estate. Bradbury Commercial are joint agents. Matthew Tilt of Bulleys said: “We are discussing with a number of enquirers seeking large properties in Telford and we are optimistic that we will be in a position to report further good news in the near future.”

Timing

Mike Slade of Helical Bar is renowned for the timing of his deals that catch the market on the move in either direction, up or down. So Helical Retail’s purchase of a 53,000 sq.metres site at Reddings Lane, Birmingham from Eaton Electric is a positive point for the city. This company is a joint venture of Helical Bar and Oswin Developments of Solihull. Helical Retail plans a 6,976 sq.metres (75,092 sq.ft.) Asda supermarket and a similarly sized retail park.

This is part of a large (£50 million) regeneration plan which includes an industrial scheme being developed by Mucklow.

Industrial dominates

Judging from the Locate in Kent (LIK) figures, the market is holding up reasonably well, being on target for inward investment in the first half when it pulled in 40 occupiers. What was noticeable is that demand for industrial property
increased to 60% in 2010-2011 from 39% in the previous year.

Peter Symons of LIK said that a planning application for the Vestas wind turbine factory at Sheerness was going in before the end of the year and "the consultation process has been positive." But he suggested more government support was needed for the industry.

Head of steam

The industrial sector has picked up steam which has been highlighted by the pre let of a large shed on the Suttons Business Park, Reading to Brakes Group, a food supplier, the largest of its type ever in the town.

The deal, through Haslams and Lambert Smith Hampton (LSH), means Standard Life Investments will develop the 19,230 sq.m.distribution and storage unit as a chilled warehouse. Philip Hunter of LSH commented: “This deal alone equates to more than 60% of the total industrial space transacted in Reading last year. For large industrial occupiers, the shortage of big sheds poses a very real challenge when it comes to acquiring new premises.”

Haslams’Neil Seager said: “Brakes’ acquisition of this new facility is an important transaction, both for Reading and the wider Thames Valley industrial market. Not only does it mark the largest deal of its type, but it sees the arrival of a major new occupier to the town.”

Another major scheme in Reading sees Royal Mail seeking a developer to buy a 69,675 sq.m. mixed use scheme on the 6 acre site of a former sorting hub. Royal Mail has planning permission for a scheme which would have 370 homes, offices, shops, restaurants and a hotel. Martin Gafsen of Royal Mail commented: “We have a strong track record in using theproceeds from the disposal of surplus property to invest in the mail operation.” Meanwhile, the office take up in Reading recorded a 116% increase to 17,191 sq.m. in the first half year compared with the same period of 2010, reports Stephen Head of Hicks Baker. He added that: “There are concerns that continuing economic uncertainty and fragile business confidence is slowing the rate of deals in the pipeline and this means the market may struggle to match the total take up of 2010.”

Head notes that the outcome will depend on the major enquiries in the market, such as Reading Borough Council and ING. He added that: “The market is relying on at least one of these ‘trophy deals’ coming to fruition in the next few months. We have to consider this (the take up in 2011) in context and remind ourselves that 2010 was already a considerable improvement on and 150% up on 2009.” The council’s decision should come in October. ING is looking for around 8,361 sq.m, more than it occupies in Reading at the moment where the lease ends in 2014.

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Swinging Edinburgh's way

The swing of the pendulum between the Scottish cities appears to have moved favourably for Edinburgh but less so for Glasgow while Aberdeen powers ahead on the crest of an oil wave. Even so, the level of activity remains weakened by the recession that started in 2007 and has hit confidence hard throughout the UK.

That is only part of the picture. The other is of a more resilient industrial sector and the impact of such improvements as the regeneration of the Clyde and the new M74 link.

According to the Registers of Scotland, commercial property transactions are down to the level of 2007 with a total of £890 million in the first half, which is £200 million below January-June 2010. David Melhuish of the Scottish Property Federation said: “Generally the market is bumping along the bottom.” As far as investment is concerned, in the first half it totalled £165 million, down from £180 million in the preceding six months. Half of this was accounted for by Glasgow and Edinburgh.

Campbell Docherty of CB Richard Ellis said: “There is still good demand from UK institutions and significant interest from overseas investors, specifically German open ended funds, in the prime regional office market although a severe lack of investment products and a shortage of development pipeline is hampering deal volume.” The CBRE report on the market highlights the stronger performance of industrial property compared with offices so far this year. Ryden’s Alan Gilkison said: ”The mid sized market, up to 3,716 sq.metres (40,000 sq.ft.), has been quiet while the smaller sector as well as larger sheds has improved.”

He noted that there had been a shift in demand for space from distribution to manufacturing. “The level of requirements is encouraging and we expect deals in the larger space to improve in the next few months.” What is clear from Gilkison and other property professionals in Glasgow is that the new M74 extension, which completes the ring road, is having a significant impact on business including opening up brownfield sites for development.

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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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Industrials to the fore

Confidence is coursing through the commercial property market throughout the region led by a buoyant industrial sector. This has been enhanced by the widespread backing for the Solent Local Enterprise Partnership from the major companies, universities and the public sector.

In Southampton substantial new developments have been given the green light and the strength of the market has persuaded developers to ready new plans. This indicates a healthier situation for pre lets. The economic improvement highlights the natural advantages of an area with major ports, a highly skilled workforce and good communications. Adrian Whitfield of Lambert Smith Hampton (LSH) said: “There has been a high take up of industrial space since mid 2009 but in the current year this could be down because of a shortage of stock. There is a lack of development on a speculative basis.” That has led to more design and build schemes spurred by the shortage of sites.

Another effect is that landlords have been able to rein in the length of rent free periods to about 1 year on a 5 year lease. Andrew Hodgkinson of Goadsby commented “It would not be a surprise to see rents in this sector begin to rise in the second half of 2011.” The central problem is that the shortage could mean that occupiers will look outside the region for their properties, although that situation has not been reached yet. For example, one major site being developed is the 140 acre former power station site of Oceanic Estates’ Marchwood Industrial Park, Southampton. This is being marketed by Adrian Whitfield (LSH) and Matthew Poplett of King Sturge who said: “Marchwood is a unique industrial estate offering opportunities for a variety of occupiers.”

The buoyant industrial market suits SEGRO very well and it has achieved a host of transactions. At Vista Park, Nursling, Pneumax has bought a 1,247 sq.metres (13,427 sq.ft.) unit and SEGRO has also sold two sites on its Voyager Park, Portsmouth. Wernick Group, a hirer of portable and modular accommodation, has bought a 2.5 acre site for a regional depot and Landscaping Supplies has purchased a 1 acre site. SEGRO’s Chris Davies said: “This represents real progress achieving our strategy of selling serviced land parcels at Voyager Park North.”

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.

Muse in Warrington

A 37 acre site in Cheshire is to be redeveloped by Waters Corporation, a scientific group, for its 500 employees with completion due in 2013.

The new headquarters at Wilmslow will be 20,299 sq.metres (218,500 sq.ft.) and will have offices, laboratories, a gym and staff restaurant. At the heart of the facility will be a mass spectrometry facility used to identify chemical components in complex structures.

Another major scheme in Cheshire is Muse Developments’ plans as a partner of Warrington Council in a £130 million regeneration of the Bridge Street area. It could have 65,030 sq.metres (700,000 sq.ft.) of mixed use space with the first phase an indoor market, shops and leisure. Later phases will bring a new council headquarters and offices.

Warrington remains a prime location for industrial property, as exemplified by two major deals by IM Properties for 6,503 sq.metres (70,000 sq.ft.) at Calver Quay. The largest of these was 4,135 sq.metres (44,500 sq.ft.) to Topgrade Sportswear, which already has a warehouse at Birchwood. Daniel Burn of Jones Lang LaSalle (joint agent with CBRE) said: “Warrington has seen considerable take up over the past few months and there is now a real shortage of quality industrial/warehouse space available.”

Static rents

Surprisingly, perhaps, rents for logistic and warehouse space in the Midlands has remained static over the past year. That is the conclusion of Colliers for its Logistics and Industrial Big Sheds Rent Map for 12 locations. The survey reveals that prime rents are actually below levels of 5 years ago, which also applies to secondary space.

But the picture is changing. Simon Norton of Colliers said: “Take up of Grade A space in the past three years has started to eat into existing supply, resulting in signs of severe stock shortage. The lack of speculative development has exacerbated the situation. For the first time in years, landlords are beginning to feel they may just have the upper hand and are holding out for better terms.”

He makes the point that developers and investors realise that land prices, which have fallen in the past 5 years, will now rise.

Worcester based agent, Halls Commercial, makes that point in its marketing of the Corbett Business Park, Stoke Prior, near Bromsgrove. This has a total of 10,108 sq.metres (108,800 sq.ft.) in an office and two warehouses but also a six acre plot for further development. One attraction is being within two miles of the M5 motorway. Halls’ Richard Tomlinson said: “Corbett Business Park provides a good opportunity for manufacturing or distribution companies who are considering relocating.”

He adds that “the shed market has held up very well and we are getting to the stage, particularly around Worcestershire and south of Birmingham, where there is a distinct lack of supply of big sheds.” Also on the market, through Jones Lang LaSalle, is Canmoor’s 10 acre site on the M54 with its outline planning for a 17,187 sq.metres (185,000 sq.ft.) warehouse. “The plot is well placed for industrial/warehouse premises,” said Carl Durrant of Jones Lang LaSalle. “Few opportunities exist in the Black Country for prime land with planning and we are expecting the plot to generate a lot ofinterest from occupiers.”

Jones Lang LaSalle is also handling a 9,290 sq.metres (100,000 sq.ft.) manufacturing plant for the Bamford Trust close to Junction 2 of the M5 which was formerly occupied by Pilkington Glass.

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.”

Small is beautiful

Apart from a shortage of prime offices, industrial property is also under increasing pressure because of a lack of new speculative schemes. The most acute problems are in the smaller and medium sized units because the big shed market is now quiet. “Demand in the smaller end is there but there is a requirement for more units up to 2,787 sq.metres (30,000 sq.ft.),“ said Alan Gilkison of Ryden.

One of the problems is the difficulty of prising funding out of banks, he added, noting the fact that demand from manufacturing companies has become more prevalent. Gilkison quoted the example of two engineering companies who have brought production back from the Far East to Glasgow because of the need to improve quality.

One scheme that caters for current demand is at Clyde Gateway East, a development of three units totalling 5,620 sq.metres (60,500 sq.ft.) At Bathgate, J Smart has bought a 6.05 acre site close to Junction 3A of the M8 motorway from Scottish Enterprise to build 4,665 sq.metres (50,218 sq.ft.) of distribution, business and warehouse space.

Bryce Stewart of Colliers International, joint letting agent with Ryden, said: “There is increasing activity in the smaller sized market, with the industrial sector currently more robust thanothers.” One manufacturing company expanding in Scotland is Rearo Laminates which has opened a new 1,022 sq.metres (11,000 sq.ft.) plant in Govan. In addition it has opened a new depot on the Longman Industrial Estate, Inverness, complementing existing outlets at Rosyth, Glasgow and Tyne & Wear.

Rearo’s Graham Mercer said: “In addition to the Inverness depot, an opportunity arose to expand our manufacturing business within Glasgow and the property at Drumoyne Road will allow us to do this fairly readily with little or no disruption to our production lines and, as importantly, our staff.”

Attractive Aberdeen

An example of the attractions of Aberdeen is that, for its first investment in Scotland, Arium, the fund manager, is poised to buy the recently completed 11,613sq.metres (125,000 sq.ft.) IQ building on Justice Mill Lane, which brought a yield of 6.5%.

The attraction is that the property was quickly let to two energy companies, Centrica and Wood Group. It underlines the status of Aberdeen as a top regional city since there is so little empty space available. Another significant transaction is the sale of the 9,290 sq.metres (100,000 sq.ft.) former warehouse of Diamond Envelopes at Dyce (now occupied by oil and gas supplier Petrowell) for £6.7 million to Highcross. The yield is 9%.

Chris Grinyer of J&E Shepherd, who acted for Diamond, said: “The sizeable sale is one of the largest industrial buildings sold in Aberdeen in recent years.”

Making things

The improvement in manufacturing which has helped the industrial property market throughout the UK has played a part in the three counties. The South East England Development Agency (SEEDA) is solidly behind this change and has awarded ULTRaMo, which is based in Haywards Heath, a grant of £88,740 towards the cost of its work on a revolutionary internal combustion engine which is expected to bring greater fuel efficiency.

The money has allowed the company to design a proof-ofconcept demonstrator of its engine. It believes that it has the potential to halve the carbon output in mechanical power applications and achieve thermal efficiency of 60%, double that of current engines.

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.”