The waiting game could be over. After seven years of negligible activity in Yorkshire’s industrial sector – caused, in part, by an excess of stock from a period of enthusiastic development before the economic crisis – there are signs that developers have the confidence to start new schemes.
Recent research tells a mixed story. According to Lambert Smith Hampton’s Industrial report 2015 take-up in Yorkshire’s industrial sector was 7.6m sq ft last year, down 37% on 2013’s figure (and 28% below the five-year average).
Simon Rhodes, LSH’s head of industrial and logistics in Yorkshire, knows data can be deceptive, however. “There were some large buildings which were let or sold the previous year and they contributed to high take-up in 2013,” he says. “Last year demand was still good, but there weren’t buildings of that sort of size for those take-up levels to be repeated.”
Others point to a local market driven by smaller manufacturers. “Yorkshire doesn’t have a Jaguar Land Rover site that you would associate with Liverpool or Coventry, says David Aspland, partner at Carter Jonas. “What it does have is people that make components. It’s these medium-sized companies that are pushing the market forward.”
Most property professionals report a significant improvement in the market in just a few months.
Iain McPhail, associate at Bilfinger GVA, thinks demand, coupled with the lack of good-quality stock, has tempted developers back into the marketplace.
“With the money in the investment market and opportunities for public-sector finance, speculative development has returned,” he says. “There is around 750,000 sq ft of speculative development recently completed, under way or set to commence.”
Early last month, a joint venture of Yorvale, Kier Property, and Maple Grove was granted planning consent by Wakefield council to develop a 142,000 sq ft speculative distribution facility at Wakefield Europort, Normanton. Yorvale has owned the site since 2012 and decided there is now enough demand to proceed.
At the same site, Mountpark has been given approval for a speculative 133,000 sq ft warehouse, branded Mountpark Wakefield.
Unlike some other schemes, these developments are going ahead without the extra backing of public sector money. According to Rebecca Schofield, partner at Knight Frank, this is a sign that confidence has increased. “Occupiers are prepared to commit to longer-term leases, and to pay higher rentals,” she says. “And that’s because of a lack of stock. Development isn’t going to come forward on the rentals we have seen historically, because of increases in build costs.”
Paying more is something that Yorkshire’s industrial occupiers are still struggling with, however. Average rents for prime sites grew by just 1.9% on 2014, according to LSH (although secondary sites saw a healthier 8.7% increase).
Jonathon White, associate partner at Sanderson Weatherall, thinks the problem is that there have been such good deals on existing stock. “The perception from owner-occupiers is that they shouldn’t have to pay more than £60 per sq ft for a new-build unit. For developers to be turning any profit they need to be making a capital value of around £80 per sq ft, which means rental values around £6 per sq ft – so there is a gap between what occupiers think they should pay and what they need to pay.
“But we have a high level of demand, because not a lot has been taken up over the past five years. We have seen incentive periods go right down, so there is upward pressure on rents and capital values.”
While there is agreement that the market is picking up, there is still a shortage of sites. Dan Hodges, associate at Ryden, says his company has been trying to acquire existing stock and land – but both are difficult to come by. “Over the past six months we have seen industrial estates become fully occupied quickly and a big surge in demand,” he says. “We have been quoted £70 per sq ft for developing a 20,000 sq ft shed – although valuers are still a bit uncomfortable at that level.”
And even though demand has improved, it is likely that it will be some time before take-up figures show significant improvement. “The perception is that the market has been improved for only six to nine months,” says David Robinson, director at Savills. “And it takes a while for these new projects to get on line.”
Agents are confident that the lack of land means there will be interest from occupiers as sites reach development-ready stage. CBRE, in partnership with Sheffield-based agent CPP, is marketing St Paul’s Developments’ 31 East site, a 750,000 sq ft logistics hub near junction 31 of the M1, part of the Sheffield City Region Enterprise Zone. “The key to the scheme is that there is very little large-scale development land left in the M1 corridor south of Sheffield – or in any of the M1 corridor,” says Mike Baugh, senior director at CBRE. “We’re bringing it forward with design-and-build opportunities of up to 425,000 sq ft.”
While acknowledging that rents will have to go higher, Baugh says occupiers realise this is something they can live with – if they get other business considerations right. “Yes, rent is a big overhead for occupiers, but labour is far bigger. So they are willing to accept higher rents for a better-quality building in a better location that will assist their business as they expand.”
Yorkshire’s enterprize zones
Much of the development in Yorkshire has been focused on the area’s three designated enterprise zones: Leeds City Region; Sheffield City Region; and the Humber Enterprise Zone. At the Leeds EZ Thornes Farm site, work is under way at Wilton Developments’ 80,000 sq ft Connex 45 scheme. At the Logic Leeds site, Muse Developments’ 110-acre manufacturing and distribution development, the first building (a £5m, 80,000 sq ft unit) is due to be completed this summer.
With EZ status comes a discount of up to 100% on business rates and simplified planning, making enterprise zones an attractive development option.
