by Peter Hitchcock
During the past 18 months, the industrial market in Liverpool has shown significant improvement, with 1988 producing a record take-up of space throughout Merseyside. For almost 10 years, declining real values of industrial properties had been a feature of the market, but at last this trend has been arrested and reversed. The optimism has continued unabated through to 1989 in spite of economic fears as a result of rising inflation and high interest rates. Industrialists are looking to expansion and modernisation again.
This revived demand has lifted the market and is beginning to renew developer interest in the area. Demand is still mainly from locally based companies or from the local operations of national companies and, apart from a handful of notable exceptions, there are few examples of national or international companies from outside the area actually taking space. However, as the local market shows confidence in itself, outsiders are bound to be encouraged and will follow. The market has shown a marked preference for freeholds, which are still relatively cheap and provide a company with the permanent advantage of low-cost premises and their own investment. For units of up to about 20,000 sq ft, freehold values have risen by as much as 40% in 12 months in some cases, although admittedly from a very low base. This trend applies to those modern buildings which are offering adaptable accommodation for modern needs.
As might be expected, near-obsolete buildings in older industrial areas or in non-conforming locations are still a difficult market and demand cannot yet sustain redevelopment for traditional industrial purposes.
However, redevelopment of these sites for alternative uses, such as residential, leisure, retail or B1, are now becoming viable with imaginative schemes well advanced through the planning stages, especially in dockland areas.
Rents for traditional industrial buildings have risen significantly, but this rise has been less marked than with freeholds as demand has been largely satisfied by existing vacant buildings which may have been on the market for some time. Nevertheless, from levels of some £1.50 to £1.75 per sq ft 12 months ago, figures of £2 to £2.25 per sq ft can now be obtained, with higher levels achieved in favoured areas, for smaller units or in the enterprise zone at Speke.
At these rental levels, new development cannot yet be justified, but as demand absorbs the existing modern stock increasing numbers of expanding companies are having to look at building new in order to satisfy their needs.
The alternative of taking prelets on new developments must now be considered seriously as a viable alternative to the capital investment of new-build. This applies particularly to units of 10,000 sq ft and upwards where there has been little new building for some years, development in the area having been concentrated on smaller workshop and nursery units from 500 sq ft to some 5,000 sq ft. With existing rental growth as a guide, and an increasing shortage of good space, figures of over £3 per sq ft for traditional industrial space must now be in sight.
Investment demand has improved, although many institutions are still nervous as Liverpool tries to shrug off its old image. The chance to purchase properties let to good covenants at yields as high as 16% has now gone and yields of 12% or even 10% are more prevelant, with property companies perceiving that the Liverpool market has bottomed; a rapid catching-up process is now under way in both rental and capital values.
In the public sector, the extension of the activities of the Merseyside Development Corporation is about to take effect. The announcement of its extended area last November has been followed by intense planning activity and should soon lead to site assembly, co-ordination and infrastructure improvements which, coupled with grant aid, will give a welcome boost to the central docklands areas and immediate hinterland. Grant aid for development, now known as city grant, is available, but with less money to play with these grants can be obtained only against stringent guidelines. Up to about 25% of costs can be funded in approved, employment-generating, projects.
The dock company itself is enjoying a business revival which is creating additional demand in these areas. In March, the Prime Minister opened the first phase of a new development in the Liverpool freeport, comprising two units of 20,000 sq ft each, and discussions are in hand with tenants at rents of £2.30 per sq ft. Planning consent is awaited for the next phase of 40,000 sq ft. The freeport is gathering momentum, with almost 300,000 sq ft let to qualifying users, and an extension of the 620-acre zone is planned.
English Estates are still the most prominent suppliers of modern and new industrial units in Merseyside and are developing in selected locations, particularly in the enterprise zone of Speke where 60,000 sq ft is on offer at £3 per sq ft in four units from 12,000 sq ft to 21,000 sq ft. One unit is already let to a covenant and a further units is under offer, all prior to completion. Elsewhere at Speke, the Skypark Estate being developed by Baltic Developments is offering serviced industrial sites at some £70,000 per acre, reflecing enterprise zone financial benefits. Land elsewhere in Merseyside can still be had for £31,000 to £50,000 per acre.
Wavertree Technology Park is the only one of its kind in Liverpool and has been particularly successful with major occupiers including Plessey, Powell & Scholefield and Barclays Bank. New phases are now under construction by English Estates with rents at some £5.50 envisaged.
Several other prominent sites in the city are being considered for comparable B1 schemes and pioneering rents of £6 or even £7.50 per sq ft are being projected. The successful examples of Warrington and Manchester suggested that far higher levels can rapidly follow once a market has been established. The experience of other Northern cities adds credibility to these proposals and Liverpool cannot now be far behind.
The market in other boroughs on Merseyside shows similar trends. A much improved take-up of existing space has been evidenced in Sefton, Knowsley, St Helens and particularly on the Wirral. Shortages of good space have developed, especially in locations with good motorway connections, and developers are looking carefully at potential development opportunities.
One of the bigger disposals of existing industrial space took place in Knowsley, where the former Anglia Paper Products building of 180,000 sq ft was purchased by the fast-growing Middlegate Shipping & Forwarding Co after many years of standing vacant.
Apart from the generally improving local economy, a number of specific events shoulds help to boost Liverpool’s growth. The introduction of the uniform business rate in 1990 is widely expected to result in a reduction in the rates burden in Northern cities, particularly Liverpool, and will help to stimulate demand and economic activity. The Channel tunnel, originally seen as a further threat to the area, is now perceived as a potential benefit, with a probable improved rail link to the North West.
The Chamber of Commerce has taken up the challenge of promoting the Liverpool land bridge idea, suggesting Liverpool as the principal European port for trade with the Americas and other non-EEC countries. Studies are also in hand for the Mersey Barrage, which would be a major national development and generate significant employment in the area. These and other initiatives will enhance the current revival of Liverpool, again proving the resilience of this major city.
