The ducks are ready. They are forming an orderly row. And Hampshire’s industrial property folk couldn’t be more excited.
The ducks are three (perhaps four) speculative warehouse schemes planned for the M27 corridor. None of them are very large, which agents think is marvellous. They believe smaller schemes will let quicker than you can say quack quack.
Behind the speculative schemes lie three other ducks in a row. These are a strictly limited supply of industrial floorspace, a strictly limited pipeline of new builds, and apparently unlimited demand from occupiers. Everything in this market is so perfectly aligned that agents are flapping their wings about rents reaching £8.25 per sq ft, or £8.50, or – whisper it if you dare – £9 per sq ft.
“Everything is falling into place,” says David McGougan, director at JLL in Southampton. “We’re seeing sites and properties moving that have been waiting for six or seven years.
“We’ve got this very rare dynamic in South Hampshire,” adds Knight Frank partner Gus Haslam. “Strong demand, supply dramatically down, rents in some locations hitting the roof, while developers wait because they still have nervous memories of 2008.”
A spate of big deals provides the background to the wave of speculative development. Fat Face, the high street fashion chain, has taken 100,000 sq ft at the previously slow-moving 48-acre Dunsbury Hill Farm.
The site, east of junction 3 of the A3 (M), which is now an enhanced link to and from London with the opening of the Hindhead Tunnel, could accommodate 720,000 sq ft of development when completed.
Other deals said to be close to completion include a 100,000 sq ft prelet on a 14-acre site controlled by Goodman UK Logistics, and a cold store operator said to be close to taking 200,000 sq ft from Mountpark on a slice of the 44-acre former Ford Transit factory site at Swaythling, Southampton. Cushman & Wakefield have been advising.
More deals would have been signed, but for the shortage of supply. Jerry Vigus, director at Lambert Smith Hampton, says: “IKEA has been looking to add 30,000 to 40,000 sq ft to its floorspace in the region, but has not been able to find it. It has had to rethink. And Amazon had been in and out of the market for two or three years before settling on Hedge End.”
The shortage of existing stock is hard to ignore. JLL calculates the total supply of M27 units sized at more than 20,000 sq ft as being around 900,000 sq ft – a fraction of the 3m sq ft let so far in 2015. The largest single unit is said to be Legal & General’s 125,000 sq ft unit at Totton, due to become vacant next year. Quoting rents will be £7.95 per sq ft – which shows how rapidly prices are moving up.
Vigus says: “I’d say there were only three units under 10 years old between Southampton and Portsmouth. Perhaps 120,000 sq ft in total, the bulk of which is under offer anyway. So rents are rising. We’re seeing figures of £8.50 per sq ft quoted on properties where £7.50 per sq ft was typical a year ago.”
Even older properties, suffering from low eaves heights by today’s standards, are letting fast. “There’s a shortage in every size range, but the hotspot is 30,000 to 50,000 sq ft,”
Land prices are rising too. Mountpark is said to have paid around £720,000 an acre at the Ford site close to junction 5 of the M27. The rumour has sent ripples round the market. Although it’s a discount on the boom-time peak of £1m an acre, it is a massive advance on the £500,000 it might have achieved at any point in the past six years.
Those developers that already control sites have responded by reviving mothballed projects, and promoting new ones. Evander Properties has won planning consent for a 206,000 sq ft, three-unit scheme at Nursling, Southampton’s main industrial area, which Rockspring Property Investment Managers is funding.
A second scheme at Alpha Park, Chandlers Ford, is being promoted by developer Bericote. The scheme will also include three units and total 152,000 sq ft. Local sources say prelets are likely following recent the recent spate: the prelet to Fat Face at Havant; 68,000 sq ft prelet to Amazon at M27 Properties’ Strategic Park, Eastleigh; and 120,000 sq ft prelet to Formaplex at SEGRO/Roxhill’s 11-acre Voyager Park in Portsmouth.
JLL calculates that more than 536,000 sq ft of speculative development is on site in the immediate region.
Exactly how fast rents are rising is disputed. KF’s Haslam says: “The speculative schemes will quote around £8.50 per sq ft with a good prospect of getting £8.25 per sq ft.”
JLL’s McGougan takes a sunnier view. He says rents are already rising at Nursling, where they nudge £8 per sq ft – and believes rents are already higher elsewhere.
“At Omega Park, Chandler’s Ford, smaller units of 10,000 sq ft are already under offer at £8.75 per sq ft from the landlord, Industrial Property Investment Fund. And this is for refurbished stock,” he says.
With supply so tight and rental growth so evident, some guess there won’t be much truly speculative development. Instead, they predict announcements of speculative starts followed swiftly by prelets. The net result will be to leave the market with as profound a shortage of standing, ready-to-occupy, stock as it enjoys (or suffers) today.
Martin Hastelow, director at Savills, Southampton, says: “Developers know that speculative development would work, and that there’s no need to be frightened, it’s fairly low risk. But with so many prelet opportunities, why should they bother? That is the risk we run.”
He predicts prelet rents will be well over £8 per sq ft, “and perhaps closer to £9, which will be a nasty shock to many occupiers”.
Nasty shocks – bang, bang – are what ducks in a row should expect.
Andover set to go the last mile
Keir Property is bringing its Logistics City concept to Andover. A 27-acre site at Walworth Business Park is being tipped for a start on site in 2017, subject to a green light from planners at Test Valley council.
A development of up to 400,000 sq ft is planned for the last-mile logistics site. Kier is joint venture partner with the council, which owns the land.
The town is also host to big-shed development at Andover Business Park. Goodman started work in June on a 339,000 sq ft warehouse with a completion date of February 2016.
Once the unit is complete, Andover Business Park will be one of the few sites in the South East to provide an immediately available industrial distribution unit of more than 300,000 sq ft.
The site is next to the A303 dual carriageway and is already home to the Co-operative Group’s 500,000 sq ft regional distribution centre.
Charles Crossland, managing director of Goodman UK Logistics, says: “The demand for quality logistics space in the UK continues to outweigh supply, particularly in the South East. This development will not only put us at the forefront of the market during 2015, but it will also help to ease the supply-demand imbalance in this region.”
In the meantime…
A 400-acre east Hampshire site earmarked for 3,350 new homes could provide an answer for some hard-pressed warehousing occupiers.
The Prince Phillip Barracks at Bordon are to close, and defence technical training will move to RAF Lyneham. Taylor Wimpey and Dorchester Regeneration were chosen in January to develop the site – but in the meantime, it is being offered as ready-to-use warehouse space.
Knight Frank is letting agent for a 135-acre slice of the site.
The firm’s Gus Hasman says: “There are units from 11,000 sq ft to 248,000 sq ft and lots of open storage space. This is flexible, relatively short-term space – perhaps 10 years – which could be useful for deep storage. But I don’t think we’ll find retail logistics operators moving in.”
Infrastructure work at the site has already begun. A new 5km road links the town of Bordon to the former garrison, following a disused rail line. It also links to the A325 trunk road. Local enterprise partnership Enterprise M3 and the Homes and Communities Agency have contributed £22m.
