SEGRO success

The steady letting of property on SEGRO’s developments in Portsmouth and the M27 corridor is a good indicator of the performance of the region’s industrial market. At the Railway Triangle earlier this year Fraser Freight took a 10,460 sq ft warehouse/ production unit to add to its existing head office and warehouse space elsewhere in the city.

In May, SEGRO let a 50,000 sq.ft. production/warehouse unit at its Unit 1 Trilogy scheme, Segensworth, to Contego Packaging on a fifteen year lease. The Trilogy scheme is now fully let. SEGRO has also let a 10,667 sq.ft. industrial unit to Snows Group, a motor dealership, on a twelve year lease, at Mitchell Way, Portsmouth.

On Voyager Park, SEGRO has let an 8,775 sq.ft. unit to Transas for a new training facility. The company is a developer of software, integrated solutions and hardware technologies to the marine and aviation industries.

It has also let a slightly smaller unit to existing occupier, Stone Bridge Global. SEGRO has now sold or let 75% of the Explorer and Discovery phases at Voyager Park, which total 1,487 sq.metres (160,000 sq.ft.). Lambert Smith Hampton’s Adrian Whitfield highlights the strength of the south coast industrial market. He said: “With a general lack of available property, this year has seen landlords in a stronger position and in some instances it has led to the reduction in the level of incentives.” But rents remain static and while the market is tough due to the economy it is mainly a result of a lack of stock. “There are a number of requirements which could be the catalyst for a developer to build a speculative scheme. However, pre let, design and build occupier led deals are more likely,” Whitfield added.

Ross Moyler from Vail Williams commented “that we have seen steady levels of industrial take up over the last 6 - 12 months which is encouraging bearing in mind the backdrop of the current economic uncertainty. We have seen a handful of larger transactions which have further reduced the available stock of bigger buildings.“

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Timing

London & Stamford Property, the REIT which has a shrewd ability to time its moves into the property market to catch the trend, has bought a distribution unit in Harlow for £23 million, a yield of 7.5%. The 25,372 sq.m. distribution warehouse is leased to Tesco and has 12.5 years to run. It is one of the supermarket group’s key distribution points for stores in London and the south east. The acquisition will become part of the joint venture portfolio held with Green Park Investments and means that London & Stamford’s equity commitment is likely to be less than £5 million. London & Stamford has now built its assets up to £1.5 million in a relatively short period. The deal comes at a time when the development of big sheds has slowed considerably, which in the long run should point to an increase in values.

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.

Active Hayes

With its proximity to Heathrow, Hayes is a popular location for a wide range of companies. It also has an active market in terms of letting and investment. One of the latest, and largest, potential transactions is the multi let 20,066 sq.metres (216,000 sq.ft.) Hyde Park office development which LaSalle Investment Management has put up for sale through Jones Lang LaSalle for over £26.65 million, a yield of 8%.

Another deal in Hayes is the letting of Highcross‘ 3,319 sq.metres (35,723 sq.ft.) distribution unit at Clayton Road to the logistics company Circle Express through Colliers International in conjunction with BNP Paribas and King Sturge. Joshua Pater of Colliers said: ”We are positive that this represents a sustained increase in demand for flexible warehousing along the Heathrow Corridor.”

Colliers was also involved in the sale of another nearby property, the 4,155 sq.metres (44,724 sq.ft.) warehouse at Hampton Farm Industrial Estate, Middlesex to Dewhurst, a supplier of components to the lift, keypad and rail industries.

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Healthier in Basingstoke

Basingstoke has had a lift with the letting by private landlords of a 3,409 sq.metres (36,700 sq.ft.) warehouse to Laleham Healthcare on Kingsclere Road. The deal, with London Clancy acting for the landlords and Hurst Warne for Laleham, means the healthcare company can consolidate its dispensary, laboratory, storage and packaging facilities

in Basingstoke from which they will carry out nationwide distribution via the M3 and M4 motorways. The warehouse known as Central 37 has been extensively refurbished and gives Laleham more space at its Alton factory to support expansion plans.

Also in Basingstoke, SEGRO has let part of Rawdon House, Kingsland Business Park to the IT maintenance and service provider, CDS.

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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.”

Minting it at Minto

The pace of new development in Aberdeen has been maintained and has generally surpassed other parts of Scotland.

For example, Knight Property Group has now completed the second phase of the 11 acre Minto Commercial Park, Altens scheme and will move onto the final phase on Site 6. So far, Knight has invested £20 million over a three year period in Minto. Knight’s Howard Crawshaw said: “Being involved in a regeneration project such as this has been extremely satisfying.”

Elsewhere at Minto, Brinker Technology (represented by J&E Sheppard) has leased the 1,115 sq.metres (12,000 sq.ft.) Renewable Energy Centre, a warehouse and office property. Graham & Sibbald acted for the landlord.

Also being developed is Stockland Muir’s Aberdeen Gateway Business Park as part of a 45 acre mixed use scheme of industrial units and offices. Stockland Muir commented: “We will capitalise on a strong occupational market and an apparent shortage of good quality industrial stock. As the oil price has risen above $100 a barrel our marketing agents have experienced a significant increase in enquiries for properties in the 929-1,394 sq.metres (10,000-15,000 sq.ft.) range.

The geographical spread of developments around Aberdeen is impressive with a speculative scheme for houses, a waste recycling centre, technology units and business centre at Alford, a village outside the city. Also, ten miles from the city centre, two new detached office pavilions have been completed on the Kingseat Business Park and are being marketed through Knight Frank and DM Hall.

RBS takes control

A further example of the management of the banks’ property debt is Royal Bank of Scotland expected to take control of the 28,427 sq.metres Friars Square Shopping Centre in Aylesbury. It would take over from Brookfield and the likelihood is that Grosvenor would be appointed to manage the mall and advise on its future development. Aylesbury is also in line for a major industrial development by Arla Foods. The company plans to spend £250 million on the world’s largest dairy in a scheme on an adjacent site around 92,900 sq.metres of industrial warehousing in two sheds. In addition there will be five units for small and medium sized companies.

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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SEGRO gets Harrods

After a lengthy period searching for a new warehouse, Harrods looks to have chosen the former Guinness Brewery site at SEGRO’s Park Royal for the 30,657 sq.metres (330,000 sq.ft.) facility. The site has been renamed Origin Park and if the deal is completed, it will be the first there since Brixton (later taken over by SEGRO) bought it in 2007. It has planning permission for over 46,450 sq.metres (500,000 sq.ft.) of commercial space as well as a data centre.