The East Midlands has long been the driving force in the UK distribution property market – and with good reason. Its central position and motorway links mean that it provides the perfect geographical spot for the hub of a national logistics network. Developers have responded to that, so much of the best logistics space is already sited in the region.
In a first quarter of 2010, when logistics take-up volumes increased in many parts of the UK, the Midlands accounted for 50% of the national take-up figure, according to Jones Lang LaSalle. The East Midlands, where take-up tripled compared to 2009, saw much stronger demand than the West Midlands.
Pent-up demand
Big deals early in the year were fuelled by pent-up demand hanging over from 2009, says DTZ, with large transactions including the 373,000 sq ft letting to 99p Stores in Northampton.
Take-up fell back in the second quarter, although a high proportion of the deals were for grade A stock. 3PLs and non-food retailers were the leading deal-makers, with White Stuff, AT Logistics Solutions and Buy it Right all taking space. The largest prelet in the second quarter was Tesco’s occupancy of 825,000 sq ft at Dirft 2 in Daventry.
There is much optimism that take-up will continue to improve, especially as Marks & Spencer is close to signing on a 900,000 sq ft design-and-build scheme at the East Midlands Distribution Centre.
DTZ also believes that a recent pick-up in the construction materials sector “is likely to be of benefit to those independent firms which may require additional space to cope with the extra demand following the demise of several large national companies in the sector during 2009”.
Some investment deals were also done in the first half of the year, such as the £26.2m purchase in June by Prupim of the Junction 6 Industrial Park near Birmingham. Prupim, advised by Cushman & Wakefield, bought the 377,000 sq ft estate from Aberdeen Asset Management fully let for an average unexpired term of 7.8 years and an average rent of £5.33 per sq ft. Nine tenants include Vodafone, BES and Iron Mountain.
Overall, say CB Richard Ellis figures, logistics take-up in the East Midlands of 100,000 sq ft-plus units in 2010 so far accounts for 26% of the national figure, with only the South East (25%) comparable in terms of volume. At the other end of the scale, Wales accounts for just 2% of the 100,000 sq ft-plus deals. In contrast, by Q2 2010, the East Midlands accounted for just 12% of logistics availability in the UK, against 22% in the North West, and 23% in Yorkshire and the North East.
King Sturge notes that between December 2009 and June this year, the availability of new industrial stock in the East Midlands dropped by 21.8%, a fall matched only by Scotland.
Caution on speculative build
But even in the East Midlands, there is still considerable caution about any large-scale return to speculative building. When Gladman showed its optimism early in 2010 with its plans for developing a 200-acre site at Vertical Park in Bevercotes, south of Worksop, the company indicated that design-and-build, rather than speculative development, was its plan.
This is likely to be the way forward for the remainder of 2010 and the beginning of 2011, with some occupiers pushed down the design-and-build route as the amount of top quality vacant space continues to shrink. This may also lead to some rental growth, because grade A space is becoming scarcer, but also to a two-track market as the rental difference between new and second-hand stock continues to widen.
