Space to fill While the North West’s attempt to emulate the success of the Midlands in the distribution market has been badly hit by the recession, geography has also played a part in its struggle. Lisa Pilkington reports
The success of megasheds in the distribution stronghold of the Midlands in the first half of the decade wasone reason for developers to copy the formula in the North West. But their timing has been knocked for six by the global economic downturn. As a result, the region now has available 6m sq ft across17units of more than 150,000 sq ft.
In addition to this herd of white elephants are a large number of smaller and secondhand premises that were either already on the market or have become vacant as a result of the recession. According to Colliers CRE’s recent Logistics and industrial spring review, availability in the North West stands at 25.7m sq ft in units over 50,000 sq ft.
The total includes schemes that are not yet built. Started before the enormity of the recession became apparent, they are due to be completed over the next few months, when they will hit a marketin which takers are few and far between.
These schemes include Gazeley’s 360,000 sq ft G.Park in Liverpool.
“There has been a very poor level of activity in the larger sized sheds market since September 2008,” says Mike Walker, head of Colliers CRE’s Manchester office. “There is clearly still an oversupply issue, with a number of schemes standing empty along the northern end of the M6 from Stoke-on-Trent.”
Walker cites HelioSlough’s and CB Richard Ellis Investors’ 415,000 sq ft Lymedale 415 development, north of Stoke, and ProLogis’ 360,000 sq ft megashed at Crewe, as casualties of the recent attempt to make the northern M6 corridorinto a megashed location.
Geography has not helped. Whereas the Midlands is perfectly placed for a drive-time radius that includes much of the UK, the North West has no such advantage, and has thus been hit as distributors fall back on central distribution hubs based further south.
What is certain is that 2009 will not break any take-up records. According to Lambert Smith Hampton, take-up of industrial and distribution space across the UK will fall by 20% this year. The agent’s National industrial and distribution report 2009 says that the decline has been caused by a tail-off in demand from retailers looking for big-box sheds, which have in turn been hit by reduced consumer spending.
Take-up in the North West this yearis expected to fall back to 2007 levels of just 7.3m sq ft – 46% down on 2008’s figure of 13.6m sq ft.
LSH’s national head of industrial, Michael Alderton, says: “The market is now entering its most challenging phase since the 1990s, as the full impact of recession spreads from retail and offices. While owners may feel the squeeze, this does represent an opportunity for occupiers looking to take advantage of market conditions.”
Driving the market
The most active occupiers include those in the waste-to-energy and budget food sectors. Sara-Jane Preston, senior director at Atisreal, says: “The waste to energy and recycling occupiers are very active and are actually driving the market at the moment [see p132].”
Walker adds: “Secondhand space on flexible lease terms is probably the most active part of the market.”
Headline rents have not plummeted as the decline in take-up and rise in availability suggest they should, because landlords have instead offered juicier inducement packages to lure in tenants, while preserving the investment value of their buildings. Prime rents hover at £6.25 per sq ft in the hotspot of Manchester – a figure that is forecast to remain unchanged for the rest of the year.
The stability of rents differs considerably from the fall in land values, which have sunk by up to 60% over the past year. While this would normally help stimulate development, the combination of a lack of funding and only a modest fall in construction costs means that significant construction is unlikely this year.
“I’m not anticipating any speculative development for at least 12 to 18 months,” says Walker. “Developers are dealing with existing stock, looking to work with occupiers on a design-and-build basis or secure options on strategic sites to progress them through the planning process.”
It is no surprise that major schemes, such as Miller Development’s long-awaited 575-acre Omega scheme in Warrington, are effectively on hold, pending an upturn in demand.
Last July, Miller was encouraged to redesign the £1bn scheme following escalating costs. Almostone year later, that process is continuing. A statement from Omega Warrington says: “As a result of the shift in economic and market sentiment, we are working with a number of stakeholders, including the Homes and Communities Agency, Northwest Regional Development Agency and Warrington council on a masterplan review; looking at a range of options for the later phases of development and uses for the remainder of the site.”
The developer hopes to be “in a position to release proposals for the revised masterplan for consultation in the summer”.
Many developers are using the hiatus in the market to secure planning consent and complete other enabling works that will allow schemes to start as soon as the market improves. In January, Wilson Bowden won planning consent for a 616,000 sq ft distribution unit at its 450-acre Kingsway Business Park in Rochdale.
Rumours have been circulating for some time that sportswear retailer JD Sports is eyeing the scheme for its 500,000 sq ft requirement, although no deal has yet been signed. Market insiders believe the deal could be on hold, as negotiations have still not been completed after two years.
However, P3 Property Consultants partner Paul Daye, joint letting agent at the scheme with Jones Lang LaSalle, confirms that the JD Sports deal is just weeks away.
“This is a very big deal for both of us, and over the past few months we’ve been watching the market,” he says. “Everybody wants the best price, and everyone’s chipping on price now. I’m fully confident that a deal will be signed in April after the final round of negotiations.”
Last year, Wilson Bowden speculatively developed five units totalling 160,000 sq ft at Kingsway, two of which have been sold. Japanese manufacturer Takeuchi acquired a 50,000 sq ft shed at £85.50 per sq ft, while laboratory space designer Vindon has bought 30,000 sq ft at the same price.
Daye says: “We have three units left totalling 80,000 sq ft and have terms out on two – one to buy and one to lease on a 10-year term.”
The park, a joint venture with Rochdale council, is not part of the commercial property portfolio that Barratt, Wilson Bowden’s parent company, has put on the market.
Atisreal’s Preston says that, while large-scale development is now on hold, Seddon Developments is bucking the trend by bringing forward small-scale development at its 3.5-acre Axis Point scheme at Hareshill Business Park in Heywood, close to junction 3 of the M66 and junction 19 of the M62.
The scheme is coming out of the ground because the Bolton-based private developer is self-funding it. According to Preston, two units out of the nine proposed in the 60,000 sq ft scheme’s first phase have been presold off-plan.
Lowest point
The outlook for 2009 is far from rosy, although most in the local property industry accept that the market will reach its lowest point at some stage in the coming months. Some, like Cushman & Wakefield’s Jason Print, believe that the worst has already happened.
He admits: “People are trying to buy sites if they can, but they’re struggling to get hold of the money as banks simply aren’t lending at the moment. Everyone would love to buy at the current land values, which have plummeted by between 40 and 60% in the past nine months.”
He estimates that a 1-acre site in Trafford Park, which was worth £400,000 nine months ago, could now go for as little as £275,000. “That’s my guess,” he says. “But there have been no deals to substantiate this as no one has got any money.”
Those schemes that have all the relevant consents in place and are oven-ready when demand does finally pick up could be well placed to reap the rewards. Andrew Ahearne, head of industrial agency at LSH’s Manchester office, believes that Kingsway and Omega should be the schemes to do this and drive demand.
“They should really recover first, but it’s anyone’s guess at the moment,” he says.
North West availability
Warehousing/distribution – completed units of 150,000 sq ft-plus
| NEW/MODERN OR REFURBISHED | ||
| Owner/tenant | Address | Size (sq ft) |
| RLAM | Pioneer Point, Ellesmere Port | 615,000 |
| Rockpoint/Evander | The Vault, Speke, Liverpool | 610,000 |
| SEGRO | Next Unit,Heywood Distribution Park,Heywood | 499,324 |
| LNC | Galaxy, Knowsley | 478,000 |
| HelioSlough/CBRE Investors | Lymedale415,Newcastle-under-Lyme | 415,000 |
| Highcross | Phoenix, Ellesmere Port(former Vauxhall unit) | 405,365 |
| Gazeley | G.Park Blue Planet,Chatterley Valley | 388,000 |
| Gladman | Manor Park 360, Runcorn | 367,861 |
| Gazeley | G.Park Liverpool | 360,309 |
| ProLogis | Weston Road, Crewe | 360,000 |
| Pochin | Unit 75, Midpoint 18 Middlewich | 350,944 |
| Topland | Manor Park, Runcorn | 343,312 |
| RLAM | Satellite Park Chadderton, Oldham | 330,000 |
| HelioSlough/CBRE Investors | Two units at Revolution Park,Chorley | 232,000197,000 |
| Legal & General | Fusion 210, Trafford Park | 210,000 |
| Valad | Broadway 21, Oldham Broadway | 180,000 |
| New Capital | Northern Gateway, Knowsley | 148,000 |
| Total | 6,061,115 |
Key deals
Royal Mail has taken 179,000 sq ft at South 62 in Winwick Quay, Warrington, for its consolidated Merseyside sorting office. Advised by WHR, the postal service will pay around £3.75 per sq ft on a 10-year lease for the F&C REIT-owned warehouse. The move follows the closure of its Copperas Hill depot in Liverpool
Goodman has let its 210,000 sq ft Pioneer 210 scheme at Ellesmere Port, adjacent to Royal London Asset Management’s Pioneer Point, to German packaging group Prowell on a 15-year lease at £4.25 per sq ft
