Lack of land is hampering developers and driving occupiers away. But optimismis rife and many believe that the handful of megasites coming onto the market will save the day. ByNoella Pio Kivlehan
London aside, Manchester rarely loses out to other UK cities. In football, music, airports and international tournaments, it comes first. But one area in which the great northern city risks being relegated to the second division is distribution development.
Today, the second generation of warehouses – those of 400,000 sq ft-plus – are demanded by the larger retailers such as Sainsbury’s, Safeway, Asda and B&Q, which are departing from their network of smaller units.
And Manchester, or more appropriately, Greater Manchester, does not have the space to fulfil these mega-requirements.
Even at the mighty Trafford Park, the only distribution deal in the past five years has been the 330,000 sq ft Kellogg’s development.
“There’s a general lack of sites in the 10 acre-plus category,” says David Rowley of FPDSavills. “What is left are old sites.”
With Greater Manchester missing the megasites, the areas soaking up the demand are Haydock, St Helens, Crew, Skelmersdale, and Stoke-on-Trent.
Chosen location
Asda choose Skelmersdale for its 350,000 sq ft shed. St Helens was Somerfield’s chosen location for its 550,000 sq ft behemoth last year, while Sainsbury’s, which was said to have preferred the edge of the M60, plumped for Haydock.
Like for like comparison, says Colin Chivers of Insignia Richard Ellis, shows there is more land available in neighbouring Derbyshire and Yorkshire.
The frustrating thing for many developers is that their hands are tied by many different elements. Chivers sums up the situation: “Distribution around the M60 close to Manchester is suffering owing to the lack of available sites of the right size and the increased cost of land.
“Distribution requirements have progressively become larger and the take-up of land around the M60 for other uses including residential, retail and offices has reduced the options available and increased values,” he adds.
That said, agents and developers are quick to point out that in the next 12 to 18 months several schemes, such as Omega, Harrington, Barton, Trafford Interchange and Wilson Bowden’s Kingsway at Rochdale, all well in excess of 10 acres, will come on line to provide the space.
The ongoing legal wranglings over Kingsway (see p90), continues to cast a shadow over the entire development. The market remains optimistic that building will go ahead in the next year.
Adding to the optimism, Rowley at FPDSavills says: “If there were large enquiries in the market then occupiers still have options to locate within the region.
“The Big Apple at Warrington has potential to provide up to 700,000 sq ft, Ashton Moss (AMEC’s development at Tameside) has a first commercial phase of 40 acres.” He also points to Shepherd Developments’ Isis, at Salford, which can accommodate 600,000 sq ft. A 170,000 sq ft unit has already been prelet to Bunzl.
Even so, Dean Young of CB Hillier Parker admits, against his own optimistic outlook, that during development the majority of the megasites around Greater Manchester “will have a barren period of up to two years”.
Even when these big sites finally come onstream, economics may work against them. Take-up is slowing and occupiers are becoming fussy.
Selective demand
“It’s easy to say there’s a shortage of decent sites coming onto the market. Certainly occupier demand is out there, but it’s increasingly selective in the locations they want to go to and the tenure type. They want freehold rather than leasehold,” says Simon Cook of Roger Hannah & Co.
The likes of ERF, Middlewich has had 400,000 sq ft lying empty since October last year. And, as Chivers points out: “The fact that Electric Park has had a speculative built available for two years, plus around 12ha (30 acres), emphasises the lack of demand in that area.”
And cost is an ever-present factor. Developing in the Greater Manchester area will always prove more expensive than developing outside it.
“It is perhaps not surprising that this trend (for larger companies relocating away from Greater Manchester) is happening given the availability of large, cost-effective sites outside the M60 and the fact that the M6 remains the primary distribution corridor,” says Steven Johnson at King Sturge.
Lack of megasites could have prompted Sainsbury’s move to Haydock, but it was also a cost-effective decision. Trafford Park, if it had the space, would have cost roughly £300,000 per acre, whereas Haydock is £100,000 per acre.
The lack of megasites may be holding the industry’s attention, but this does not mean that the Greater Manchester industrial development market has ground to a halt – it has merely adapted to its situation.
“Within the M60, the market has changed from distribution to mixed-use, smaller warehousing, light industrial and processing, in addition to the loss of employment sites to other uses,” says Chivers.
Freehold and design-and-build (see panels) are two other aspects of the market that have increased dramatically.
Referring to the design-and-build market, Richard Wilks, director with Argon Properties, which works on joint developments with Shepherd Developments, says: “Anything over 30,000 sq ft, then occupiers need some specification in the unit if you are looking at the main distribution market. It’s too difficult to do speculative buildings over 100,000 sq ft because people have definite ideas what they want.”
Smaller units
Overall, the demand now lies in the smaller market. Talking about developer New Age Properties’ Churchill Point at Trafford Park, Rowley, agent for the scheme, says it is purposely sticking to smaller units. There will be three units ranging from 20,000 sq ft to 50,000sq ft.
The reason for this is the continuing demand for smaller size sites. Says Rowley: “There’s a market up to 50,000 sq ft, and 150,000 sq ft and above.
“If you have a unit around 100,000 sq ft that can be split or extended, you have a better chance of letting it.”
This is not to say that units in that medium area – around the 100,000 sq ft bracket – are not being taken.
Earlier this month Savills, jointly with King Sturge, did a deal for Qualtex to take 90,000 sq ft at Shepherd Developments’ Eastern Approach, Denton. But this has been one of the only deals of this size in the past few months.
Deals are still being made and schemes built, but ultimately, most developers have been looking at the state of the market and whether, with all the uncertainty about war in Iraq, it will not suffer.
Some, like Cook, foresee tough times ahead, even when the likes of Kingsway finally open for business. “It’s going to be harder for agents, developers and occupiers to enjoy the times we have had (in the past few years).”
But IRE’s Chivers takes the view that life goes on and units will be needed after any war, and the bigger the better.
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Speculative industrial development under construction, Feb 2003 |
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Two large units will be completed this summer in Bolton and Salford |
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Site |
Location |
Developer |
Completion date |
Status |
Size (sq ft) |
Quoting rent (£ per sq ft) |
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Blackberry Park, Wingates |
Bolton, Greater Manchester |
CDP |
Summer 2003 |
Under construction, available |
35,750 in two units |
£5.25Industrial Park |
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Agecroft Commerce Park |
Salford, Greater Manchester |
Langtree Group |
Under construction |
60,000 in two units |
£4.50 leasehold |
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Agecroft Commerce Park |
Salford, Greater Manchester |
Priority Sites |
Summer 2003 |
Under construction, available |
45,000 in three units |
£4.75 leasehold |
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Boundary Court, Crossley |
Stockport, Greater Manchester |
Prime Figure |
Under construction, available |
21,695 in three units |
£5.25Road, Heaton Chapel |
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Source: King Sturge |
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Manchester industrial development |
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Electric Park has been available since November 2000 |
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Property |
Size (sq ft) |
Available since |
Quoting terms (£ per sq ft) |
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Maximus |
105,000 |
August 2001 |
3.95 |
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City Trucks |
145,500 |
October 2002 |
4.50 |
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M2 Heywood |
102,500 |
October 2001 |
5.00 |
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Electric Park |
105,000 |
November 2000 |
4.00 |
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Chestergates, Deeside |
100,400 |
January 2002 |
2.95 |
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Midpoint, Middlewich |
240,000 |
January 2001 |
4.25 |
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ERF, Middlewich |
400,000 |
October 2002 |
3.75 |
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Grand Central |
105,000 |
March 2002 |
4.50 |
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Source: FPDSavills |
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Supermarket RDC locations (North West) |
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Morrisons secured a 950,000 sq ft site in 1997 |
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Company |
Size (sq ft) |
Location |
Comments |
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Sainsbury’s |
600,000 |
Point 23, Haydock, M6/J23 |
Originally acquired site in 1995 for phase I. Extended to total area two years ago |
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Morrisons |
950,000 |
Gadbrook Park, Northwich, M6/J19 |
Includes a bakery. Site acquired in 1997 |
|
Somerfield |
550,000 |
Linkway 62, St Helens, M62/J7 |
Acquired 43 acres last year. Building almost complete |
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Asda |
350,000 |
XL, Skelmersdale, M58/J5 |
Recently acquired site for new RDC |
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Tesco |
400,000 |
Midpoint 18, Middlewich,M6/J18 |
Established occupier with room for expansion |
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Safeway |
300,000 |
The Grange, Warrington, M6/J21 |
In two main buildings fronting M6. Extended recently |
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Source: Insignia Richard Ellis |
Passions are still burning in the Manchester industrial market for freehold purchases.
The fad, which has been gathering momentum over the past few years, has practically reached fever pitch as many developers, for example Shepherd’s, say that 80% of enquiries are for freehold.
Colin Chivers at Insignia Richard Ellis lists several reasons why this has happened: low interest rates means borrowing is cheap; familiarity with buy-to-let has lead individuals to buy; lack of institutional funding has reduced traditional speculative development; and knowledge of sale and leasebacks has offered further flexibilities and opportunities to create values.
As a result, leasehold has become less popular. “It’s increasingly difficult to get leasehold opportunities, and to attract occupiers to a leasehold scheme,” says Simon Cook of Hannah & Co.
That is, unless it is a national occupier. Richard Wilks, director of Argon Properties, which works on joint developments with Shepherd Developments, says the market is split in two when it comes to leasehold versus freehold. He says local occupiers prefer freehold, with national companies opting for leasehold.
King Sturge’s Steven Johnson explains why. “Locals buy freehold because they are family-run businesses… and it comes down to local mentality. While some nationals do want to invest, it’s often company policy to get a leasehold. A lot of large multi-nationals are foreign-owned and they don’t want to buy property.”
The trend for freehold should continue as Dean Young of CB Hillier Parker, points to the benefits for developers. “By keeping construction costs down and paying realistic prices for sites, developers are then prepared to build their own resources and offer the market what it wants.”
