Against the backdrop of a recovering economy, Scotland’s industrial sector is buoyant and demand is strong. But does the time lag between registering new demand and providing suitable space reflect a lack of confidence on the part of developers?
“We have seen improvement in the market generally over the past 12 months,” says Colliers director Iain Davidson. “There has been increased demand with transaction levels up and positive sentiment evident.”
Davidson says demand spans the property spectrum – from new build and modern secondhand space, to older “budget” space. And that demand emanates from a wide range of sectors including engineering, oil- and gas-related businesses, whisky, food and drink, as well as storage, distribution and e-commerce.
But the key issue is the shortage of stock. “There are a number of unsatisfied requirements and very little speculative pipeline. We always expected a time lag between the market picking up and speculative stock coming on stream but I hope the private sector does come in and steps up to the plate,” says Davidson.
Knight Frank’s Logic, a review of the market in the first half of the year, reported take-up of 1.62m sq ft in units of 50,000 sq ft and above. That was 4% up on the second half of 2013 and 41% more than the five-year bi-annual average. KF says that most of the 16 deals done in H1 2014 were freehold sales of second-hand industrial units.
During the first half of the year, Schlumberger Oilfield UK agreed the only major prelet, for 68,000 sq ft at Badentoy North Business Park in Aberdeen. A 15-year lease was agreed. Meanwhile, Oil States Industries acquired 27 acres at Heartlands Business Park in Whitburn on the M8, halfway between Edinburgh and Glasgow, for a new 190,000 sq ft R&D facility that is now under construction.
“Design and build has been limited to date but is definitely going to be a feature of the market, especially for larger 100,000 sq ft-plus buildings,” says Davidson. Scotland is fortunate in that land supply is not an issue.
Around 200 acres of development land remains available at the 650-acre Eurocentral industrial estate on the M8 in Lanarkshire. Here the Eurocentral Partnership, a pairing of Muse Developments and Scottish Enterprise, has sites ranging in size from five to 120 acres and is offering built-to-suit space in 26 weeks. David Cobban of Savills says there is interest from both manufacturers and distributors.
At J4M8 Distribution Park, Livingston, a further 65 acres remains available for new build, while Prologis has 25 acres of land beside the 503,000 sq ft distribution building that the company developed for the Co-Op, completing the building in 2010, at its PrologisM8 development at junction 6 of the M8 near Newhouse, Motherwell. The company has also just completed 172,600 sq ft there for food distributor Brake Brothers following what was last year’s largest prelet.
But at the end of the first half of 2014, the supply of modern warehouse units of 50,000 sq ft and above had been unchanged since H2 2013, says Knight Frank, with only five new units totalling 783,110 sq ft available. The supply of space in all size ranges has meanwhile fallen slightly and continues to comprise “a significant proportion of poor-quality stock, often only suitable for redevelopment,” says KF.
But there continues to be little speculative development.
Clyde Gateway East is one exception. Here, MEPC and Scot Sheridan are going ahead with a second speculative phase comprising four units totalling 75,000 sq ft following a letting to Torishima Europe and a prelet to BT in the previous phase.
One thing that may help to explain developers’ caution over speculative activity is the difference between their and occupiers’ expectations of rents. “Many businesses out there that have battled through the recession and want better units, but are paying £3 per sq ft and don’t realise that they will have to pay £6.50 to £7 per sq ft for new space,” Cobban says.
“There is no doubt that they could get second-hand space cheaper, but the supply is now diminishing quickly and along with it, the quality of the space available.”
Public sector space to the rescue
The public sector is helping to bridge the supply/demand gap in the industrial market.
Fusion Assets, a property-led regeneration company and subsidiary of North Lanarkshire council, has speculatively built a 44,000 sq ft multi-let industrial estate at Dundyvan Enterprise Park in Coatbridge with contractor/developer CBC, completing the project in October 2013.
Now the development partners are planning to build 45,000 sq ft at Western Campus in Strathclyde Business Park and 40,000 sq ft at Condor Park at Eurocentral. Construction is expected to begin in early 2015.
The company also acquired a 6.5-acre site at Gartcosh Industrial Park from Scottish Enterprise for four speculative units totalling 80,000 sq ft. Meanwhile, at Newhouse, just off the M8, Fusion Assets acquired an eight-acre site adjacent to the new Co-Op warehouse for four industrial units totalling 65,000 sq ft.
Small operators eye White Van Man
At the smaller end of the scale, trade counter operators such as Travis Perkins, Halfords, Tool Station and Screwfix are busier than in previous years, says Kirsty Palmer, associate director at JLL.
Colliers’ Bryce Stewart agrees. The resurgence of demand for
units of 3,000 sq ft to 5,000 sq ft has been triggered by a new spate of residential development and refurbishment and the re-emergence of “white van man”, he adds.
