Sheds shifted at record rates during 2006, as the booming economy brought bumper demand for distribution space. With development sites in Birmingham and across the region in short supply, competition sent land values soaring.
In 2005, Slough Estates paid £500,000 per acre for the former Delta Metals site in Birmingham for its Meteor Park development. This year, Catesby smashed that record by paying £3m for five acres of brownfield land near Fort Dunlop, for its Vantage Point scheme.
Reflecting developers’ confidence in the market, both schemes are being built on a speculative basis.
So, if a record is going to be set in 2007, where will it be? Nick Waddington, Knight Frank’s head of industrial, puts his money on HP Sauce’s historic home in Aston.
“It’s a classic brownfield site,” he says. “The council is anxious to see employment uses retained when the factory closes, and that will set the new benchmark.”
The biggest land sale of 2006 went to ProLogis, which paid around £75m for Seven Trent Property’s 500-acre landbank with consents for 5m sq ft. However, developers got a shock when they competed for the 20-acre Yuasa Batteries site in Tyseley.
AJ Mucklow won the bid battle by paying just shy of £9m – a bargain at £450,000 per acre.
Mucklow’s managing director, Justin Parker, believes Yuasa and its advisers had not focused purely on cash. “We didn’t put in the highest offer, but we are long-term investors, not traders, and I think that appealed,” he says.
Mucklow beat off stiff competition from rival bidders ProLogis, St Modwen and Slough Estates for the Yuasa site, and Parker predicts more of the same success in 2007.
“We had been quiet on the development side for years, but we had a shake-up in 2004, and now we are more aggressive,” he says. “We won’t always pay top dollar, but it is great to start mixing with the big boys.”
Parker believes more off-market deals are likely in 2007, as sellers avoid the time and expense of formal auctions.
He adds: “We’ve got the cash to do deals, and that gives us an advantage. It’s a good time to be opportunistic.”
PruPIM, with its Hub scheme in Birmingham’s Witton district, is another which believes its time has come. The 90-acre site could take 1.3m sq ft of space, but failed to progress under its original developers, Opus Land/Frontier Estates. So its joint venture partner, the Pru, took control. In October, it completed a £20m programme of remediation and infrastructure work.
Storage company Iron Mountain promptly signed up for a 63,000 sq ft prelet, and indicated it may take a further 70,000 sq ft.
As EG went to press, food producer Geest-Bakkavor was considering taking an 83,000 sq ft unit as it prepares to relocate from its Jewellery Quarter premises.
PruPIM development director Jon Weymouth is also planning to build a speculative 125,000 sq ft warehouse on the Hub’s Witton Road frontage, giving the scheme a much-needed landmark gateway.
Reaping the rewards
With most quoting rents for new stock coming on stream in 2007 already at £6 per sq ft, it looks to be a race between the Hub, Meteor Park and Vantage Point to sign the first deal at that level.
“Rents have been heading steadily northward, and developers that have been willing to build speculatively have reaped the rewards,” says Knight Frank’s Waddington.
The out-of-town market has been equally buoyant this year, with Sladen Estates’ Radial Point scheme at Stoke-on-Trent attracting interest. The 183,000 sq ft distribution centre, a speculative development, was let to Marks & Spencer at £5 per sq ft – a record for the area.
In October, Warner Estate Holdings bought the unit for £14.3m – a net initial yield of 6.08%, and another high for north Staffordshire.
North Rae Sanders’ director Robert Rae believes demand for land will remain high outside main urban areas as developers search for value.
“Land around Birmingham may be £550,000 per acre and above, but it’s more like £350,000 per acre in the Black Country,” he says. “You’ll start to see more off-market deals as clued-up developers try to stay ahead of their rivals.”
Strong occupier demand and a shortage of new space have also driven up prices in the freehold market, which had hovered around £65 per sq ft for several years.
Nick Ford, head of industrial at Lambert Smith Hampton, reports that a local owner-occupier – Righton – recently bought 20,000 sq ft off-plan at Wilson Bowden’s Nexus Point scheme, near junction 6 of the M6.
The deal went through at an eye-opening £88 per sq ft – so does Ford think that is a new benchmark or a one-off?
Not wanting to commit either way, Ford says: “It remains to be seen if the market will continue to command such high prices in the long-term.” However, he identifies Catesby’s Vantage Point as one to watch in 2007. “We’ll all be keeping a close eye on the success of that scheme, because Catesby is quoting £95 per sq ft, which would be a record.”
So, with the market showing no signs of flagging, and records there to be broken, it looks like 2007 will be a lively time.
