The East Midlands dominates the distribution network. So how will it maintain its position? asks Cheryl Freedman.
They call it the Golden Triangle: a slice of distribution heaven wedged between the M69, M1 and M6 in the East Midlands. But all is not peaceful in the kingdom of the heavy goods vehicle. The heat is on for competing distribution locations to attract a variety of occupiers combing the region, and beyond. Each brandishes its own set of cut-throat motorway drive-times to entice the magnificent men in their loading machines.
In recent times the name most frequently muttered in East Midlands’ backroom bars has been that of one budget Scandinavian furniture seller. Ikea’s recent shortlist for a 55,740m2 (600,000 sq ft) requirement reportedly included Pillar and Parlison Properties’ A1/M1 Link at Thrapston; Kingspark’s Eurohub at Corby; Hanson Land’s new town Hampton at Peterborough; Gazeley’s Latimer Park in Kettering; and Kier Construction’s Warth Park at Raunds, near Wellingborough. The firm is expected to make its final decision in May.
Elsewhere, BT is on the brink of closing a deal on a 35,302m2 (380,000 sq ft) national distribution facility at Gazeley Properties and the Church Commissioners’ Magna Park.
Nick Redwood is head of industrial agency at Chesterton, joint agent with Lambert Smith Hampton, and he believes that Ikea’s search reflects a general optimism in the air. “There was a lot of talk last year about retailers’ inquiries becoming smaller. Over the past quarter retailers have come back very strongly: if anything, requirements are now even bigger,” he says.
According to local agents, other companies seeking space include fashion retailer T K Maxx, electronics firm Hotpoint and food distributor Brake Brothers. The other main news on agents’ lips concerns a withdrawal rather than a deal. Most admit that they were not terribly shocked by Sears’ announcement that it was “holding” its decision to take 51,095m2 (550,000 sq ft) at Wilson Bowden’s Interlink, at junction 22 of the M1.
Softening the blow is news from Wilson Bowden’s Paul Bagshaw that Interlink has an application in on 18,580m2 (200,000 sq ft), is expecting to announce a new occupier shortly and is working up another for 15,329m2 (165,00 sq ft). Steve Moriarty of Fuller Peiser hints that the first tenant will be a third-party operator. Supermarket multiples such as Tesco, Sainsbury’s and Asda and overseas discount foodstores remain a considerable force in the region.
New players
“Major food retailers are consolidating their warehousing activity, but new players in the market – such as Lidl and Aldi – and established business looking at new markets, like Morrisons, still have unsatisfied requirements,” says Chesteston’s Redwood.
John Burbage of LSH adds: “If an overseas supermarket is going to come into the UK the first thing it needs is a distribution centre. If it is doing it from a central point it will almost definitely be the East or West Midlands.”
Asda has been particularly busy in the area. At Hunters Point, Corby, the company last year took a former Facia unit of 22,760m2 (245,000 sq ft) on a five-year lease at £30 per m2 (£2.75 per sq ft). King Sturge and North Rae Saunders acted for landlord McGregor Cory. LSH acted for Asda. Meanwhile, Asda is searching for another 27,870m2 (300,000 sq ft) and among the candidates is CNT’s Brackmills at Northampton. Asda also extended its facilities at Magna Park by 9,290m2 (100,000 sq ft).
Other retail names which swallowed up East Midlands sites last year included Levi Strauss UK, which took 5ha (12 acres) at Swan Hill and Norwich Union’s Swan Valley Park at Northampton to build a new 13,935m2 (150,000 sq ft) distribution facility (see “Development” pp125-126). And Littlewoods purchased a 7ha (17.5 acre) plot at Centrum 100 in Burton upon Trent to develop a 27,870m2 (300,000 sq ft) distribution centre. Hillier Parker and Rushton Hickman Partnership jointly represented developers Bass Developments.
While there is plenty of land available, agents report surprisingly few locations with attractive planning specifications. Burbage says that there are few large sites in the right place. “In the East Midlands there are literally thousands of acres with industrial and warehouse planning consent but not a lot of land that is attractive in terms of location or provision of large plots.”
Even so, secondhand space is likely to take time to let, says Moriarty, because most companies with specific requirements plump for design-and-build schemes. For example, supermarket distributors, which may require 200 vehicle movements a day, need large loading bays.
The general distribution market is complicated by the requirements of third-party logistics firms, which often prefer shorter leases to tie in with client contracts. Says Redwood: “With the continued trend towards outsourcing of distribution on three- to five-year contracts there is likely to be a serious imbalance of supply and demand in the next six months for the distribution contractor sector.”
Although Burbage does not believe that contractors dominate the distribution market: “I would say there is no more on the market now than 10 years ago,” Michael Parry of Fuller Peiser estimates that up to 70% of supermarkets now use third-party firms. He believes outsourcers like Wincanton are prepared to risk freeholds if they secure a long contract with a firm. Overall, Redwood says that despite the opening of the Channel Tunnel and improved A1/M1 links, national distributors continue to favour the Golden Triangle.
“Other counties have failed to secure significant improvements in distribution warehousing activity but have become ‘through routes’ to traditional locations.”
Driver limits
Parry agrees that the East Midlands is a natural choice: “Drivers are allowed to drive four and a half hours without a break and a total of nine hours in a day. If you want to get there and back in a day, the only major centre you can’t reach [from the Midlands] is Newcastle.”
But choosing a site can be a daunting task. While a slightly poorer access route may mean only a couple of extra miles on the clock, extra petrol costs soon add up.
“If you are mainly loading slow moving goods like TVs with two or three loads a day, the benefits of central locations are less,” says Parry. “If you’ve got 200 vehicle movements a day, the real cost is in travel, wear and tear on vehicles, fuel, driver’s time and waiting times.”
Redwood agrees: “For a lot of people it depends on where they are distributing to and how many journeys they have got to make as to how critical the absolute location is.”
John Lloyd & Partners has undertaken research for Swan Hill Developments to compare the costs and other factors which might influence a distributor choosing between SHD’s Swan Valley off junction 15A of the M1 and Brackmills, Northampton.
The study looked only at logistical and operational issues to calculate how annual operating costs differed between the two locations. Using a special “warehouse design and cost” model, generating different distribution centre sizes and volume of inbound and outbound loads, in certain scenarios Swan Valley offered savings as high as £800,000 for routes from the north, south and west but not from the east.
The results suggest that higher land costs at Swan Valley could be recouped by savings on transport costs. Parry comments: “It was justification for quoting higher land values at Swan Valley than five miles down the road.”
Barry Pople, director of JLP, says: “If you are looking at two competing sites and one of those is a number of miles from the motorway, competition with a direct access site is a substantial issue for major distributors with large amounts of movement.”
But Burbage of LSH, joint agent at Brackmills with DTZ, is cynical of the study. In defence of Brackmills he says: “Panasonic has chosen to locate at Brackmills and Asda has looked at the site.” He does not believe that it makes sense to compare two sites which have different access to the motorway. “I don’t think Swan Valley and Brackmills are competing,” he says, adding: “It is of benefit to Northampton, to have two such good developments.”
