Even shed agents will admit take-up in 2014 was surprisingly high, at nearly 7m sq ft. Occupiers realised that if they wanted a five-year, rather than a 10-year, lease it was a good time to get one. As a result, anybody who built speculatively in 2014 got a good result, with most buildings going before practical completion. Rents have hit £6 per sq ft and even £6.50 per sq ft has been struck in a deal with an as-yet unnamed tenant for 52,000 sq ft at Solihull Business Park – a new high.
However, agents would be even more surprised if 2015 take-up surpassed 2014. “Jaguar Land Rover has taken a big chunk of available space,” says Colliers International associate director Peter Monks. “There is a limited amount of available space and, as such, it will be a tougher year for shed agents in terms of immediate fees.”
“There is a lot of navel gazing because of long memories,” adds CBRE’s senior director, Birmingham industrial agency, Richard Meering. “It has taken six or seven years to shift new buildings and it is taking longer to build new property.”
Haunted by the downturn, developers have been very selective about what they build in the West Midlands, with an increasing reliance on design-and-build. “Developers have tended to build larger sheds of between 150,000-200,000 sq ft,” says Monks. “We need a range of smaller shed space – there is a lack of good-quality 50,000-100,000 sq ft sheds in Birmingham and Coventry.”
A shortage of suitable grade-A space had pushed up headline rents from £5.75 to £5.95 per sq ft in Q1 2014. “The feeling in the market is there will soon be a deal done at £6.25 per sq ft for a larger, 150,000 sq ft shed,” says Monks.
While enquiries are holding up, particularly from the automotive sector, there is not enough stock to satisfy demand. DHL and other suppliers for Jaguar Land Rover are said to be unable to find the right space. If you have the existing stock, it will go, says Savills industrial director Ranjit Gill. “The M42 corridor – Solihull to Tamworth – and the M6 corridor to the north and east are particularly hot; anything built there will go quickly,” he says.
“We are also seeing steady demand from retailers looking to facilitate their online operations,” says Prologis senior vice-president Alan Sarjant. Prologis pressed the button in January on a final 127,500 sq ft plot at Prologis Park Midpoint, due for completion in August, and Sarjant notes strong interest at quoting levels of £6.50 per sq ft.
“We will also commence more spec activity at Prologis Park Ryton this year. We are looking to bring forward 108,000 sq ft and 140,000 sq ft developments, leaving one major plot which we can develop up to 500,000 sq ft in a single unit or multiple buildings,” says Sarjant.
Canmoor is quoting £6.50 per sq ft for two units at Hams Hall, Birmingham, while CBRE is quoting north of £6 per sq ft at Goodman/LaSalle Investment Management’s five industrial units totalling 214,000 sq ft at Lyons Park, Coventry. Bericote’s 102,000 sq ft Chrome 102 unit at Minworth is also quoted at £6.50 per sq ft.
Coleshill-based IM Properties has had a good couple of years. “Every time we have put a spade in the ground we have had everything let before PC,” says senior development director Kevin Ashfield. “There simply aren’t enough sites to cater for the demand and few buildings are coming back. It is a real problem for the region.”
IM’s Birch Coppice Business Park was the success story of 2014. “We got £6.15 per sq ft at Birch Coppice from UPS for the last plot and I could easily see us quoting £6.25-£6.50 per sq ft for Birch Coppice Phase III. We are about to start putting Phase III infrastructure in place, providing about 350,000 sq ft. We will also spec a 50,000 sq ft plot at the same time.”
IM Properties is also developing The Hub, which Ashfield claims provides around half of deliverable current space in Birmingham. “We are finalising details, but we expect about 100,000 sq ft for starters and then keep it going forward on a rolling basis. The Hub is likely to be the one to be specced next.”
Ashfield says there will be a two to three-year period where sites cannot be brought forward quickly enough to meet demand. “It is great for developers with sites, but eventually if someone has a big requirement, there are few options. We have spoken to a couple of occupiers wanting 20-25 acres, but it is very difficult to find the sites.”
Of course, it is not just about new build. “There will be lease expiries,” says Gill. “Any grade-A space coming back will go quickly and refurbs are achieving pretty good rents compared with previous cycles.” Occupiers, therefore, are bracing themselves for a hardening of lease terms and reduced incentives.
In the longer term, a major problem in the West Midlands is the lack of employment land limiting spec development, a situation exacerbated by HS2, which has reserved large areas of previous employment sites. Although Coventry has got some land coming through on the south side of the city, Birmingham has got virtually nothing and it will rely on release of green belt and other land from the adjacent North Warwickshire borough council.
Birmingham city council is promoting Pedimore, an 80ha scheme just north of Prologis Park Midpoint close to the A38. Prologis has secured options on green belt land around Pedimore for its Birmingham International Gateway. “The draft plan is still emerging and it won’t be until the back-end of 2015 until we make progress,” says Sarjant.
