gva.co.uk

Industrial
Intelligence
Spring 2015
gva.co.uk
UK Occupier
overview
• The industrial sector has seen diminishing
supply over the past six months, improving
demand, an exceptional investment market
and a significant uplift in speculative
development across the country.
• Take-up of modern distribution units over
100,000 sq ft amounted to 22.6 million sq
ft during 2014, 11% above the five year
average, the highest level since 2010 and in
line with pre-recessionary levels. There has
been a sharp increase in take-up of second
hand space as the better quality units have
become fewer.
• Retailers took just under half the total space
as they continue to create more efficient
supply chains with an increasing need for
regional distribution centres, serving smaller
satellite units, closer to population centres.
Retailers responding to e-commerce and
expanding omnichannel and digital media
continue to generate growth.
• As with last year activity has been healthy in
the manufacturing sector and in particular
the automotive industry in the Midlands and
the North West. The most significant deal
was 470,000 sq ft letting to Jaguar Land
Rover at Prologis Park, Midpoint, Birmingham.
JLR’s investment in new models has led to a
number of requirements from component
suppliers.
• In other significant deals, third-party logistics
giant Norbert Dentressangle has taken
‘Big Foot’ in Daventry, a one million sq ft
building, from where it will service its contract
to Amazon. Staples has taken 528,000 sq
ft in Corby and Victoria Plumb has recently
taken 277,000 sq ft at V277, Doncaster in a
relocation and expansion from Hull.
• Following the success at Omega North near
Warrington there have been two recent
deals at Omega South. Internet retailer The
Hut Group signed the largest deal in the North
West last year, a 690,000 sq ft pre-let at £5.50
per sq ft, funded by London Metric at £47.5
million, an initial yield of 7.5%. In significant
inward investment to the region, international
manufacturer Plastic Omnium has also
recently signed a 240,000 sq ft turnkey
freehold at £23 million.
• Enquiries and requirements are strong in the
South East, Midlands and North West. In the
South East discount food retailers Lidl and Aldi
both have requirements along with a further
enquiry from Amazon. Discount retailers are
also amongst the larger requirements in the
Midlands: 200,000 sq ft for The Range and
175,000 sq ft for The Works, together with an
ongoing requirement from B&M Stores for a
major Midlands warehouse. There has been
an increase in enquiries from advanced
manufacturing and aircraft component
companies in the North West and from
manufacturers in Yorkshire.
• Many requirements from logistics
companies are still for 3 to 5 year leases,
in order to match the contracts they are
being awarded, although landlords are
increasingly insisting on minimum 10 year
leases as well as pressing for increased rents
at lease renewals.
• The last year has seen a step change in
the decline of available good quality units.
There is currently less than a year’s supply of
modern distribution units over 100,000 sq ft
across the country based on past take-up
rates. With the shortage of prime supply there
is increased interest in secondary stock in
good locations and we are beginning to see
pockets of unsatisfied requirements in certain
parts of the country. Take-up of three large
sheds in the North East over the past three
months has left very little supply and the lack
of availability in the South West is leading to
the first signs of speculative development.
• The speculative development market
is responding to the supply shortage,
particularly in the South East, Midlands and
the North West. This time last year design
and build accounted for the majority of new
stock and there were only a handful of small
speculative developments underway. There
is now over 5 million sq ft of speculative units
across the country under construction or with
imminent start dates. Predominantly this is for
big sheds outside the South East but around
London there are an increasing number
of smaller unit schemes in the pipeline,
important for service based companies with
customers in the City and West End. The
re-emergence of speculative development
is covered in more detail at the end of this
bulletin.
• The strong demand and falling supply
of good quality stock has impacted on
headline rents and incentives have also
hardened, halving in certain locations since
the depths of the recession. Of the key UK
locations that GVA monitor (see map) net
effective rents have increased by an average
of 11% over the past year, with the South East
locations showing the strongest growth.
In Focus:
London and the South East
There is a broad level of occupier
activity in London and the South
East servicing the growing London
economy and the wider South
East market. Increasing business
confidence is encouraging
occupiers to invest and acquire
modern better specified units.
Take-up of modern distribution units over 100,000
sq ft amounted to 4.8 million sq ft in London
and the South East in 2014, 21% of the UK total.
In the big shed market, the latest large deals
have been led by the food retailers including
900,0000 sq ft to Waitrose in Milton Keynes and
600,000 sq ft to Ocado in Belvedere. Among the
logistics companies Eddie Stobart took 410,000
sq ft in Dagenham and Kuehne and Nagel were
active in Feltham.
Major Recent Deals in London and the South East
Quarter
Property
Occupier
sq ft
Deal
Rent (£ psf)
Q1 2015
Erith
Ocado
600,000
Pre-let
£9.80
Q3 2014
Dagenham
Eddie Stobart
410,000
Secondhand
£7.30
Q3 2014
Harlow
Brake Bros
270,000
Secondhand
£6.00
Q3 2014
Green Park Way, Greenford
Royal Mail
246,802
Secondhand
£5.95
Q4 2014
Hoddesdon
3663
220,000
Modern
£7.25
Q3 2014
Swallowdale lane, Hemel Hempstead
Robert Dyas Holdings Ltd
189,254
Modern
£5.80
Q3 2014
Prologis, Didcot
Better Bathrooms (UK) Ltd
166,583
Modern
£6.50
Q1 2015
Heathrow
DHL Express (UK) Ltd
150,000
Pre-let
£15.00
Q3 2014
Girling Way, Feltham
Kuehne and Nagel Ltd
121,450
Modern
£12.95
London and the South East prime rents
Key Available Units in London and the South East
Property
14
DC380, Harlow
380,463
Modern
£7.25
12
London Gateway
316,561
Under Construction
£8.25
10
DC1, Dunstable
316,339
New
£7.25
Logic 233, Dagenham
232,965
Modern
£8.25
M4ssive, Reading
230,334
Secondhand
£8.50
DC1, Milton Keynes
209,951
Secondhand
£5.25
Erith 180
180,378
Modern
£8.10
Expansion, Enfield
166,850
Modern
£10.75
Access 8, Hemel Hempstead
129,233
Modern
£7.50
97,000
Under Construction
£9.25
£ psf
16
8
6
4
2
0
Enfield
Heathrow
Park
Royal
Milton
Keynes
March 2014
Reading Southampton
March 2015
West
Thurrock
Enfield
SIze
Grade
Quoting rent (£ psf)
More recently this year John Lewis has confirmed
it is to open a new 638,000 sq ft distribution
centre in Milton Keynes, where along with
Waitrose they already occupy over two million
sq ft. Mainly focused on large furniture, electrical
and home furnishings, the new warehouse will
support the growth of the retailer’s omni-channel
offering.
It has been a very proactive few months
for SEGRO, who has also purchased BMW’s
Bracknell site where it plans to replace existing
warehousing with a variety of different units up
to 230,000 sq ft. It has renewed its simplified
planning zone agreement with Slough Borough
Council for a further 10 years enabling
automatic planning permission on the Slough
Trading Estate.
With an increased level of take-up, the supply
of good quality modern sheds in London and
the South East remains tight. As a result the
region has experienced the greatest increase
in speculative development over the past 12
months. With the lack of quality stock on the
market, this new space is letting well and in
many cases is being pre-let during construction.
This in turn is likely to increase the level of
development over the next year.
Pressure continues to increase on industrial land
around London for competing uses, such as
residential and particularly in West London where
employment land is in very short supply. The area
will also be affected by HS2 with blighted sites in
Park Royal.
E-commerce continues to drive the mid-market
(30,000 sq ft to 100,000 sq ft), with the growth
of digital retailing increasing demand for
strategically placed industrial sheds. Specifically,
the market is seeing a rising demand for smaller
distribution units close to central London with
larger hubs positioned outside the M25.
This competition for industrial land use as well
as the weight of institutional investment being
targeted towards the industrial market is being
reflected in land values. Over the year to March
land values in Park Royal have increased from
£2 million per acre to £2.25 million and in Enfield
they have jumped from £900,000 per acre to
£1.5 million. As an example a 2.3 acre site in
Tottenham recently received 24 bids and is now
under offer.
For example, last November, Ocado signed a
15 year lease on a 68,000 sq ft unit on SEGRO’s
West London development Origin at Park Royal.
As part of the second phase of development,
due to start this Spring, John Lewis has signed a
25 year pre-let on 108,000 sq ft which, subject to
planning, will be built-to-suit.
The freehold owner occupier market for units
up to 20,000 sq ft is also strong. There is now a
greater emphasis on speculative development
in this size range and it is gaining strong occupier
interest. Kier has three schemes at Uxbridge,
Hayes and Frimley, with Chancerygate and
Goya also active acrosss the South East.
Similarly, global logistics company DHL has
agreed a pre-let deal with Howard Group for
a 57,000 sq ft warehouse in Lewisham at £16
psf. DHL will relocate from its former Nine Elms,
Battersea operations and will occupy the whole
of the Tea Shed development. SEGRO and Aviva
have also confirmed a 150,000 sq ft pre-let to
DHL, on a 25 year lease at around £15 psf, in
what is Heathrow airport’s largest letting since
2002.
In the year to March, prime rents have increased
by between 10% to 15% in Park Royal, Enfield
and West Thurrock to £14.50, £9.75 and £8.50
psf respectively.
UK distribution
investment market
Investor demand for UK distribution
property has been exceptional
over the past year, driven by both
domestic and overseas buyers.
UK distribution property investment
transactions in 2014 amounted to
£4.7 billion, the highest on record
and 85% above the five year
average.
Yields continue to see downward pressure
with average UK distribution yields falling by 97
basis points during 2014 (IPD annual index),
compared to all-property, which moved in by
67 basis points. The industrial sector continues to
prove popular with increased investor demand
from both domestic and overseas buyers. UK
institutions (43%) and UK property companies
(34%) accounted for the majority, with overseas
investors accounting for 14%.
Key Investment Deals
Location
Area Sq ft
Unexpired
Lease Term
Project Eagle
1,600,000
4 years
Ocean Portfolio/Fradley Park
3,798,870
£15,600,000
(£4.10 psf)
Various
£226.5m
6.50%
Dec-14
Orbital Portfolio
1,017,100
£6,400,000
(£6.30 psf)
Various
£113.8m
6.15%
Dec-14
Crossdox, Erith (Funding)
560,000
30 years
£5,488,000
(£9.80 psf)
Ocado
£98.8m
5.25%
Jan-15
G.Park, Swindon (Funding)
55,898
25 years
£642,827
(£11.50)
TNT UK Ltd
£11.8m
5.15%
Dec-14
Factory Lane, Croydon
172,000
6 years
£1,227,000
(£6.70 psf)
Tesco
£21m
5.50%
Dec-14
G. Park, Stoke on Trent
382,949
10 years
£1,684,976
(£4.40 psf)
JCB World
Logistics
£29m
5.45%
Dec-14
Magna Park, Lutterworth
194,678
6.5 years
£995,530
(£5.11 psf)
Toyota
£17.4m
5.40%
Dec-14
Magna Park, Lutterworth
122,231
6 years
£610,000
(£5.00 psf)
P&O Ferrymaster
(Sublet to Asda)
£10m
5.10%
Nov-14
West Ham Industrial Estate,
Basingstoke
454,000
7 years
£2,500,000
(£5.50 psf)
Sports Direct,
Torque Logistics
£40.35m
6.25%
Nov-14
Rent
Tenant
Price
Yield
Date
£5,200,000
(£3.60 psf)
Various
£60.18m
8.00%
Jan-15
Q1 2015 has seen limited supply in the UK
distribution investment market resulting in strong
competition for product. Prime assets together
with good quality secondary estates continue
to lead the charge owing to an improving
occupational market, improving rents and
strong rental growth prospects. Market sentiment
is positive particularly in the urban logistics
sector owing to constrained land supply and an
evolving retail sector.
Notable transactions towards the end of 2014
included the sale of the P&O Ferries and Toyota
distribution units at Magna Park, each let for a
further six years and achieving yields of between
5.10% and 5.40%. More substantial lot sizes
have been subject to considerable demand
with portfolio sales and larger multi-let estates
achieving a premium owing to both the weight
of money in the market and their ability to offer
diversification of income. The sale of West Ham
Industrial Estate is also worthy of note achieving
a yield of 6.25%, 125 bps in excess of quoting.
With the weight of investment and lack of
quality product in the market, investors are
looking further up the risk curve, where they
can drive returns, encouraged by stronger
occupational performance; although many
buyers remain frustrated at the level of
competition in the market.
In addition to the recent increased demand for
value-add opportunities there has also been
a renewed interest in forward commitment,
development funding and speculative
development, particularly from institutional
buyers. The additional risk associated with these
opportunities provides investors with targeted
returns that are more difficult to obtain at current
pricing levels.
Over the medium to longer term we expect
economic growth close to trend and the
occupational market to continue to improve.
The increased interest in retail distribution/
logistics space and constrained land supply
will place further pressure on rents providing
improved performance to those investments
that have traded at low initial yields.
We are extremely positive about the outlook
and we expect yields to continue to harden
over the short term with an expectation of more
moderate capital growth towards the end of the
year.
We expect the distribution sector to outperform
other core sectors in 2015, buoyed by strong
occupational demand that is as much reliant
on the continued structural shift to internet
retailing as on the economic growth cycle. We
forecast a double-digit total return of 13% for
2015 (following 23% in 2014), compared to all
property at 11.5%, from a combination of
yield compression plus average UK rental
growth of 2.3%.
Speculative Development (2015)
Scheme
Developer / Fund
Size (sq ft)
Comments
LONDON AND SOUTH EAST
Andover Business Park
Goodman / Anglesea
336,800
Completion in 2016
London Gateway
Prologis
316,561
Completion Q2 2015
Kingsnorth Commercial Park
Goodman / Anglesea
226,570
Completion in 2016
Dagenham
Standard Life
190,000
Completion April 2015
Magna Park, Milton Keynes
Gazeley
185,000
Completion Autumn 2015
Stockley Park, Heathrow
Prologis
139,000
Completion Autumn 2015
Enfield
Gazeley
100,557
Completion in 2016
Buckingham Ave, Slough Trading Estate
SEGRO
70,000
Completed
Liverpool Road, Slough Trading Estate
SEGRO
60,000
Completed
DC7 Prologis, Grange Park, Northampton
Prologis
341,000
Completed
Derby Commercial Park
Goodman / Anglesea
323,895
Completion Autumn 2015
Grange Park, Northampton
Goodman
304,000
& 162,000
Completion Autumn 2015
G Park, Royal Oak Way, Daventry
Gazeley
297,000
Completion Autumn 2015
Rugby Gateway
Roxhill and SEGRO
237,000
Construction started Jan 2015
Central M40, Banbury
Barwood / BA Pension Fund
235,000
Completion Summer 2015
Magna Park, Lutterworth
Gazeley
180,000
Completion End 2015
Silver Bullet, Coleshill
Canmoor
143,000
Completion Summer 2015
Chrome 102, Midpoint, Birmingham
Rockspring
102,000
Completion Summer 2015
Airport City, Manchester
Stoford / Mountpark
220,000
Planning granted
Revolution, Chorley
Evander / BAPF
184,000
Started on site Jan 2015
Union Square, Trafford Park
Marshalls CDP/ M&G
175,000
PP submitted
Venus 110, Knowsley
New Capital Knowsley
110,000
On site
Link 95, Heywood
Graftongate / Aviva
MIDLANDS
NORTH WEST
95,000
On site Summer 2015
YORKSHIRE
Tri-link 140 Normanton
Yorvale / Kier / Maple Grove
142,000
Completion Autumn 2015
Mountpark Wakefield, Normanton
Mountpark / Stoford
133,000
Completion Autumn 2015
East Leeds - Connex 30 and 50
Wilton Developments
80,000
Completion Summer 2015
Logic, Leeds
Muse developments
80,000
Completion Summer 2015
Gateway 36, Barnsley
Harworth Estates
65,000
Completion January 2016
AMP, Rotherham
Rotherham MBC
52,000
Built
Unit 2, Victory Park, Sheffield
Property Alliance Group
50,000
Built
Trident Park, Normanton
CDP / St Brides 30,000
Completion Spring 2015
100,000
Completion Spring 2015
NORTH EAST
Portobello Trade Park, Gateshead
MGL Developments
Axis 19, North Shields
Northumberland Estates
30,000
Completion Spring 2015
Larch Court, North Tyneside
Hellens Group
35,000
Completed
St Modwen
37,000
Completion January 2016
SOUTH WEST
Access 18, Avonmouth
Speculative development
With the rapidly diminishing supply
of prime stock, robust occupier
demand and a strong investment
market, there is a growing appetite
for speculative development.
A year ago there were only a
handful of schemes in the South
East and Midlands. Today we
have calculated that speculative
development under construction
or with imminent start dates amounts
to over 5 million sq ft.
A number of funds are aligning themselves
with leading developers and are actively
pursuing opportunities in prime locations.
With the lack of quality investment portfolios,
speculative development presents funds with
an opportunity to acquire new well specified
stock and enhance their returns by sharing in
the development profit. Funds will generally
expect to receive a large proportion of the
profit with the developer being incentivised to
let the property quickly.
Prologis, Goodman, Graftongate and Gazeley
are the main developers progressing sites in the
big shed speculative market near the ‘Golden
Triangle’, Daventry, Rugby and Northampton.
SEGRO have also been very proactive in
building up a speculative development
portfolio in London and the Thames Valley.
Other active developers such as Goya, Kier and
Chancerygate are aligning themselves with funds
such as Legal and General, Aviva, BlackRock, DTZ
IM, M&G, Cordea Savills and LaSalle.
The recent speculative tie up between
Goodman and Anglesea provides strong
evidence of the improving development
market. Anglesea has agreed to buy a number
of standing income producing assets and in
return will provide speculative development
funding on three sites, totalling over 1 million
sq ft at Derby Commercial Park, Andover
Business Park and Kingsnorth Commercial Park
in Kent. The units between 266,570 sq ft and
336,800 sq ft are subject to planning and will
be developed by Goodman, with completion
expected early 2016.
Outside the main distribution centres, there are
fewer big shed speculative schemes proposed
although speculative development is underway
at Normanton, East Leeds, Gateshead and
Avonmouth
UK land values and rents
Glasgow
£5.50 psf
18 months
£175k
per acre
Key
Newcastle
Prime rent, £psf (50,000 sq ft unit)
Rent free (months on a ten year term)
Land values per acre (assumes 5 acre plot)
£5.50 psf
9 months
£200k
per acre
Funds are particularly keen on the industrial
market for a number of reasons:
£5.50 psf
9 months
£300k
per acre
4000
• Both income and capital returns are
outperforming the office and retail sectors
• The buildings can be constructed quickly,
particularly where infrastructure is already in
place
In addition, availability of development finance
is improving, interest margins are declining and
loan-to-cost ratios are increasing. Over the last
two years there has been a marked increase in
construction orders (a proxy for development
activity), but from a very low base, as the chart
below shows; which has led to a sharp increase
in construction prices. Orders are heading
towards more normal levels seen between
2000 and 2004, rather than the more heady
levels from 2005 to 2007.
Immingham
Liverpool
3000
Sheffield
£5.25 psf
9 months
£325k
per acre
2500
2000
Coventry
£5.95 psf
9 months
£500k
per acre
1500
Birmingham
£5.95 psf
9 months
£500k
per acre
1000
500
• Planning is not particularly contentious.
Planning policy changes in support of a
growth agenda have helped create a more
developer friendly environment
Leeds
£5.50 psf
9 months
£325k
per acre
3500
£ million
• The sector’s exposure to e-commerce. The
American developers in particular, such as
Prologis and Logicor have seen the positive
effect of this market in the US
Teesport
Manchester
Industrial contruction orders (12 month total / 2005 prices)
0
2000
Q1
2001
Q1
2002
Q1
2003
Q1
2004
Q1
2005
Q1
2006
Q1
Factories
2007
Q1
2008
Q1
2009
Q1
Warehouses
Current speculative construction amounts to
about a quarter of 2014 annual take-up over
100,000 sq ft, so building is still only being
targeted in the best locations, such as London,
Birmingham and Manchester where supply is
tight. In the prime areas the increased level of
activity has impacted on land values. Of the
13 locations that we monitor we have seen an
increase of 17% in land values over the year to
March, with locations in the South East showing
the strongest growth.
2010
Q1
2011
Q1
2012
Q1
2013
Q1
Northampton
£6.15 psf
9 months
£500k
per acre
Felixstowe
2014
Q1
London Gateway
Cardiff
£4.95 psf
12 months
£250k
per acre
Avonmouth
Bristol
£6.40 psf
10 months
£400k
per acre
Park Royal
West Thurrock
£14.50 psf
6 months
£2,250k
per acre
£8.50 psf
6 months
£850k
per acre
Southampton
Enfield
Portsmouth
£9.75 psf
6 months
£1,500k
per acre
Dover
London
Birmingham
Bristol
Cardiff
Dublin
Edinburgh
Glasgow
Leeds
Liverpool
Manchester
Newcastle
Published by Bilfinger GVA.
65 Gresham Street, London EC2V 7NQ.
©2015 Copyright Bilfinger GVA
Bilfinger GVA is the trading name of
GVA Grimley Limited and is a principal
shareholder of GVA Worldwide Limited,
an independent partnership of property
advisers operating globally. Bilfinger GVA
is a Bilfinger Real Estate company.
Should you wish to discuss the findings
of our research in greater detail please
do not hesitate to contact:
National Industrial and
Distribution team
Nick Collins
Senior Director
020 7911 2112
[email protected]
Robert Dunston
Senior Director
0161 956 4202
[email protected]
David Willmer
Senior Director
0121 609 8302
[email protected]
Mark Beaumont
Senior Director, Investment
020 7911 2183
[email protected]
Neil Dovey
Senior Director, Investment
020 7911 2168
[email protected]
Giles Tebbitts
Research
020 7911 2670
[email protected]
gva.co.uk
This report has been prepared by Bilfinger GVA for general information purposes only. Whilst Bilfinger GVA endeavour to ensure that the information in this report is correct it does not warrant completeness or
accuracy. You should not rely on it without seeking professional advice. Bilfinger GVA assumes no responsibility for errors or omissions in this publication or other documents which are referenced by or linked to this
report. To the maximum extent permitted by law and without limitation Bilfinger GVA exclude all representations, warranties and conditions relating to this report and the use of this report. All intellectual property rights
are reserved and prior written permission is required from Bilfinger GVA to reproduce material contained in this report. Bilfinger GVA is the trading name of GVA Grimley Limited. © BIlfinger GVA 2015.
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