If the shires of the South East have an industrial heartland, then Bedfordshire must surely be able to claim the title. As the market clambers towards recovery, the industrial sector is proving to be the pillar of the county’s commercial property sector. That does not, however, mean that Bedfordshire’s shed-shifters have not had a tough few years, or that things do not remain difficult.
But local agents argue that the market could be worse. According to Lambert Smith Hampton, take-up of 5,000 sq ft-plus units in south Bedfordshire reached a total of 717,000 sq ft by the start of December 2010. The year’s total is forecast to be 750,000 sq ft.
Compared with take-up levels at the height of the market – 1.2m sq ft in 2007 – 2010 was a sluggish year. But it is an encouraging figure when compared with what agents hope will prove to be the bottom of the market – total take-up of 410,000 sq ft in 2009.
LSH director Lloyd Spencer says: “The M1 corridor is where we see most activity in the 150,000 sq ft-plus size band. There’s been quite a bit of activity focussed on existing stock.”
James Haestier, director in Colliers International’s logistics and industrial team, adds: “The market’s been tough, but, because there has been some quality stock available, there have been some deals. However, supply has dried up in the past 18 months. Now, occupiers will struggle to find a 200,000 sq ft-plus building.”
Among the deals last year, Legal & General Property secured Sainsbury’s in January as a replacement tenant for Woolworths in its 460,000 sq ft Bedford Connect warehouse at Marsh Leys Distribution Park. The retailer is paying a rent of £5.50 per sq ft for 20 years. In addition, in October, pharmaceutical logistics company Movianto took the 135,000 sq ft former Wells & Young’s facility in Bedford.
The deals – both for secondhand units – demonstrate either that occupiers are as cost-conscious as ever, or that they cannot get their hands on new stock.
Looking forward, the measure of the market will be developer interest, and logistics specialist Gazeley is positioning itself to be a major stakeholder in Bedfordshire’s industrial future. At its G Park on Boscombe Road in Dunstable, the developer, alongside US-based ICP Asset Management, owns 32 acres for which it has planning consent for a single, 750,000 sq ft shed. Demolition at the site has been completed, and Gazeley is poised to begin building. All it needs now is an occupier to justify construction.
“We did not consider speccing it,” says Alex Verbeek, development director at Gazeley. “We’d never speculatively develop 750,000 sq ft in this market.”
But Verbeek is quick to state his faith in the sector’s future: “We have ongoing discussions with four occupiers. It underlines the confidence that people have in the geographic area.”
If it did secure a tenant, Verbeek says, Gazeley could build at Dunstable right away. Julian Hodge Bank and Deutsche Hypo are lined up to finance the project, which is expected to be valued at £90m when completed.
Verbeek argues that the challenges facing Gazeley are not specific to the Bedfordshire market. “What’s happened in recent years has changed the landscape,” he says. “Not withstanding the overall economic uncertainties, empty rates legislation has changed the game for speculative development.”
Developer Canmoor is also looking for tenants for a design-and-build opportunity of up to 400,000 sq ft at its Woodside scheme in Dunstable. Local agents hope that such developer interest in the market will be matched by occupier requirements.
“We’re starting to see conversations between developers and occupiers, and sites coming forward,” says LSH’s Spencer. “The point is that we’re at an early stage of the change in the market and, while we have seen deals done, developers don’t need to build speculatively at the moment.”
But agents insist that the market is turning in favour of developers. Quality, secondhand units command rents of up to £5.95 per sq ft, say agents, and Gazeley is quoting £7.75 per sq ft at G Park Dunstable.
Spencer says that rents remain largely unchanged this year, although he admits that incentives did increase in the early part of the year. “Incentives have stabilised now and there is an argument to say that, as supply gets more limited, they may reduce during 2011 if demand remains consistent,” he says.
But the crucial question facing market players is: where will the requirements come from this year?
“Demand is coming from food and discount retailers, predominantly, for the online side of their businesses,” says Colliers’ Haestier. “They generally want 200,000-300,000 sq ft to service their internet market and are looking for good logistics locations like Bedfordshire.”
Sir Philip Green’s Arcadia Group recently looked at taking space in Bedford, although the requirement is on hold for the time being. Caterer Brakes Brothers is looking for 150,000 sq ft, and Dunstable-based media product manufacturer Cinram is also considering a move to a 250,000-300,000 sq ft unit in the Bedfordshire area.
But it might still take a while for demand levels to encourage developers to take a punt on the Bedfordshire sheds market, agents admit. “Will we see speculative development next year? Probably not,” says Spencer, “but I wouldn’t be surprised to see speculative development in early to mid-2012.”
Small deal sustain a slow market
Despite being located within commuting distance of London, the office market in Bedfordshire is not experiencing the bounce seen in the capital.
The major development project planned for the county is Napier Park, the long-awaited, mixed-use redevelopment of the former Vauxhall car factory in Luton, which is being proposed by Laing O’Rourke subsidiary Explore Properties. Included within the plans is 650,000 sq ft of offices.
Asked to update EG on the project’s progress, Explore declined to comment.
But while local agents admit that times are tough, they do point to rays of hope. Lambert Smith Hampton’s Dan Jackson says: “We are noticing that, very recently, there’s been what feels like an improvement in enquiry levels.”
Colliers International research shows that office take-up in Luton in 2009 was just 76,000 sq ft, which is considered by many to be as bad as it is likely to get.
LSH’s Paul Jessop says that take-up for 2010 looks likely to have clocked up 117,000 sq ft in the Luton and Dunstable area, of which almost 50,000 sq ft occured in the last quarter of the year: “On the whole, it’s a pretty good picture compared with 2009,” says Jessop.
Glancing at last year’s most prominent deals, it is clear that there is demand from a wide variety of occupiers. The problem is that those occupiers rarely took more than a few thousand sq ft each. Last year, at Luton’s main business park, Capability Green, fashion retailer Alexon took 26,000 sq ft, while publisher United Business Media took 12,000 sq ft.
There have also been much smaller deals. Bramall Construction took 5,400 sq ft, caterer Gate Gourmet took 3,400 sq ft, and German banking giant Handlesbanken took 1,800 sq ft.
Headline rents in Luton are around £19.75 per sq ft at Capability Green, which Jessop says has been fairly consistent over the past year, although he admits this figure is not representative of the entire market.
However, he adds that landlords are less inclined to offer large incentive packages to prospective tenants: “During the course of the year, incentives have come back in to 12 months rent-free as opposed to 18 months.”
Looking ahead, Bedfordshire is not overwhelmed by demand. Pharmaceutical firm AstraZeneca is looking for 50,000 sq ft, although the fact that the firm is aiming to downsize from the circa 100,000 sq ft it occupies suggests that few firms are in expansion mode.
“We’re starting to see conversations between developers and occupiers, and sites coming forward”
Lloyd Spencer, Lambert Smith Hampton
