Manufacturing sets the pace

The message from many parts of the region is that manufacturing is leading the way in the improvement in the industrial market.

That is what the government wants to hear, but it has come naturally without the help of the public sector. It is hard to know how far this trend can advance but it is certainly highlighted by DTZ in its research on the UK market with the comment that “manufacturing has been at the heart of much of the positive news during the quarter.” While that applies to the wider UK, other comments from the Thames Valley bear that out.

Tunde Adegbemile of DTZ said: “The Heathrow and West London markets tend to provide a good indicator for Greater London and the south east, and there are some signs of confidence becoming more established with some speculative developments likely to commence in the second half of the year.” Adegbemile added that “from a logistics perspective, demand continues to be dominated by the food retailers, although there are signs of improving activity from the health and pharmaceutical sector.” One of the largest deals for manufacturing capacity is by Albion Land, advised by Jones Lang LaSalle and White Commercial, for Goodrich CTG, a leading carbon fibre technology firm, to take 12,774 sq.m. (137,500 sq.ft.) at Network M40, Banbury.

The £9 million facility will allow Goodrich, part of the US Goodrich Corporation, to expand extensively and develop new products. This follows Albion Land pre letting the slightly smaller nearby property to First Line and forward selling it to a pension fund client of Whitmarsh Holt Young for £8.65 million. Simon Parsons of Albion Land commented: “We identified the site as one of the few locations between London and Birmingham able to accommodate these large units. On the strength of demand we are keen to consider other opportunities along the M40.”

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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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Creating jobs

While sentiment in manufacturing is stronger than for over a decade, there is some hesitation among economists about its effect on employment. In the case of Bristol, Oxford Economics expects employment to be negative for 2010 and 2011, mainly because of the loss of public sector jobs.

The argument is that the service sector is not picking up fast enough to help with employing people who have been made redundant by the government. Oxford Economics looks for a solution in expanded consumer spending and investment.

This might be too gloomy a picture for a region like the South West where a combination of high technology companies, top educational establishments and good environment bring their own impact on the economy.

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.”

Persistence brings reward

Peter Symons of Locate in Kent, the inward investment agency, has been unwavering in his efforts to get a major wind turbine manufacturing facility in the county.

His arguments have always been that the Kent coast is a logical place to manufacture wind turbines for the growing number of turbine farms in the North Sea and around the coast of the UK.

This has paid off handsomely with the world leader in this technology, the Danish company Vestas, choosing Sheerness for its manufacturing plant. This follows the German company Siemens locating an £80 million turbine manufacturing factory in Hull.

Symons said: “The Vestas plant will build on the county’s already excellent credentials, its two existing wind farms and another under construction, (London Array) which, once complete, will be the world’s largest.”

He views the wind energy industry as a key growth sector for the UK and has been aware for some time that Kent has a particularly important role to play. This long term commitment meant Locate in Kent starting talking to London Array six years ago and Vestas in 2010. “The Kent coastline has several ports and harbours with excellent facilities to support both construction and operations and maintenance activities,“Symons said.

“Sheerness Port is part of the Medway Superhub, which offers more than 200 hectares of development land.” Other factors that help the arguments for Kent are its position between the English Channel and the North Sea and the good links to London, the rest of the UK and the continent. As part of this initiative, the Swale Skill Centre is being aligned to the offshore wind industry and DONG, which has a 50% stake in the London Array, is supporting 8 apprenticeships. Symons’ aim now is to attract other wind turbine manufacturers to the county as well as ancillary suppliers. The Vestas plant should be in full production by 2015.

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.

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.”