National Industrial & Distribution Report 2010
A return to speculative development in 2010?
Inside this report: » Rent bounce expected in prime locations » Recovery in demand set to continue » Take-up in 2009 exceeds previous two years » Continued focus on green agenda
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National Industrial and Distribution Report / 2010 / Executive summary
Executive summary
• The occupational market exhibited the early signs of recovery in the latter half of 2009 as take-up improved to record a 10% increase on the previous year’s level. • This was not sufficient to counteract the release of second-hand space onto the market, which pushed overall availability up to 320m sq ft, an increase of 22% on the end 2008 level. • The availability rate for the UK industrial market as a whole rose to 8.9% at the end of 2009 from 7.3% at the end of the previous year. • New space on the market fell to below 60m sq ft, a decline of -19% from the previous year as occupiers targeted this sector of the market in the light of the preferential terms on offer. • The large shed market also saw a fall in new space on the market, with only 26m sq ft of availability in buildings of 100,000 sq ft and above. Short-term predictions • The recovery in demand which began in the second half of 2009 is expected to continue and take-up in early 2010 looks strong. • Shortages of new built stock have become apparent in particular areas of the market, for example in large buildings in the south of England and the mid-size market (25,001 to 50,000 sq ft) across most of the UK.
2 / Lambert Smith Hampton
• Speculative development may return in 2010 in areas where shortages are acute. • Availability is expected to remain high with the continued release of second-hand space onto the market as inefficient businesses continue to suffer. • Competition from occupiers for new space, in areas where supply is tight will put upward pressure on rental values. Medium-term predictions • Occupier demand is expected to improve as the economic recovery gathers momentum. • Distribution should recover as retailers continue to improve their supply chain in order to benefit their bottom line profits in a fiercely competitive environment. • Internet and food retailers will continue to drive the market together with Sustainable Technologies/3pl/4pl. • Speculative development returns will be earlier than expected but only on a restricted basis and development completions are not expected to outstrip demand. • There will be upward pressure on prime new built rental values, although the large over-hang of secondhand space will hold back rental levels in general. • Imbalance in supply and demand for size range 20,000 to 50,000 sq ft.
National Industrial and Distribution Report / 2010 / Overview
the past few decades, showed a more
Overview
resilient performance over the recession, falling by a more modest -4.6% – Chart 2.
Economy
• Household consumption has also suffered
• Following a period of significant decline,
2009 and -4.0% since the start of the
economy began in the final quarter of 2009,
downturn. Households have been impacted
with the revised GDP figure showing growth
by high levels of indebtedness, built up during
of 0.3% on the previous quarter – Chart 1.
2000/07 and the threat of unemployment as
• Overall GDP fell by -4.8% in 2009, bringing
Recovery is expected to gain momentum during 2010/11.
during the downturn, falling by -3.0% in
the long awaited recovery in the UK
the economy moved into recession.
the overall decline in the UK economy since
Forecasts
the start of the recession to -6.0%. • Manufacturing output and construction have been at the centre of the slowdown, falling by -14.1% and -13.6% respectively. Service sector output, the main driver behind the UK economic performance over
• Recovery is expected to gain momentum during 2010/11 as both manufacturing and service sector output continue to strengthen. • Consensus forecasts expect GDP growth of 1.4% in 2010, followed by a return
Chart 1
to trend growth in the economy of 2.2%
GDP growth % quarterly
in 2011 – Chart 3. Forecast
GDP Growth
• The consumer economy is expected to remain slow over the next two years,
1.5
growing more slowly than the economy
1.0
in general, as households continue to
0.5
consolidate their financial position.
0
UK Industrial and Distribution Market
-0.5 -1.0 -1.5
Take-up
-2.0
• Industrial market activity recovered in
-2.5
2009, with total take-up in the UK rising -3.0
Q4 Q1 2007 2008
Q2
Q3
Q4
Q1 2009
Q2
Q3
Q4
Q1 2010
Q2
Q3
Q4
Q1 2011
Q2
Q3
Q4
to 85.7m sq ft, an increase of 10% on the previous year’s figure – Chart 5.
Source: ONS & Consensus Economics
• Following on from a slow first three months of the year, activity in the final
Chart 2
three quarters pushed take-up to its
GDP growth % quarterly
highest annual level since 2006. Services
Manufacturing
Construction
• One quarter of the market’s total take-up was accounted for by the acquisition of
4
new or refurbished floor space, as occupiers have taken advantage of the preferential
2
terms on offer from landlords. 0
• Prime rents across the UK fell by an average of -3.6% whilst tenant incentives have
-2
increased, with landlords competing to secure lettings.
-4
-6
-8
Q4 2007
Q1 2008
Q2
Q3
Q4
Q1 2009
Q2
Q3
Q4
Source: ONS
Lambert Smith Hampton / 3
National Industrial and Distribution Report / 2010 / Overview
Overview continued
• All of the southern regions saw a decline in
Take-up by size of unit
activity, with the exception of London, where
• Take-up was dominated by large
take-up increased by 21% to 6.3m sq ft.
transactions, with activity in units of 100,000 sq ft and above accounting for
• The Midlands saw the largest increase in
23% of the total. Take-up of units of
take-up over the year, more than doubling
50,001 to 100,000 sq ft accounted for a
to record 22m sq ft of transactions.
further 13% of overall activity – Chart 4.
• The northern regions (Yorkshire & The Humber, North West and North East) saw
• Take-up of small business units (less than 10,000 sq ft) accounted for 30% of
activity levels remain relatively stable
activity, whilst medium-sized (10,001
compared to the previous year, at 24.4m sq ft.
to 50,000 sq ft) units accounted for the
• Scotland and Wales had contra experiences;
remaining 32% of activity (27.7m sq ft).
take-up in Scotland falling by -18% whilst Wales recorded an increase in activity, rising
Regional spread of take-up
by 9% to almost 4m sq ft.
• Activity levels in the south of the UK (London,
Total availability in the UK increased by 22% over 2009.
South East, South West and Eastern) fell by
Supply
8% compared to the previous year.
• Total availability in the UK increased by
Chart 3
GDP growth % annually GDP
Manufacturing
Household consumption
4 2 0 -2 -4 -6 -8 -10 -12
2002
2003
2004
2005
2006
2007
2008
2009
2010 (f)
2011 (f)
2012 (f)
2013 (f)
2014 (f)
Source: ONS & Consensus Economics
Chart 4
Chart 5
Take-up by size 2009 %
UK industrial market take-up m sq ft Second-hand
100
80
60
40
< 5,000 17% 5,001-10,000 13%
20
10,001-25,000 18% 25,001-50,000 14% 50,001-100,000 13% >100,000 25% Source: LSH Research
4 / Lambert Smith Hampton
0
2005
Source: LSH Research
2006
2007
2008
2009
New
National Industrial and Distribution Report / 2010 / Overview
22% over 2009, reaching 320m sq ft by the end of the year. This represented
Chart 6
UK industrial market availability by grade m sq ft
8.9% of the total built stock of industrial
Second-hand
New
Availability rate (rhs) %
floor space – Chart 6. • The release of second-hand stock onto the market added 45m sq ft to overall
350
12
300
10
availability whilst the amount of new and refurbished space decreased by 14.5m sq ft. • New space accounts for 19% of total
250 8 200 6
availability, almost 60m sq ft of floor space, with 54% of this total in buildings of 50,000 sq ft and above.
Availability by size • Almost 93m sq ft (28% of total available
150 4 100 2
50 0
2005
floor space) is in buildings of 100,000 sq ft and above, an increase of 14% on the end 2008 figure – Charts 7 and 8. • The highest concentration of new floor space is in buildings of 100,000 sq ft and
2006
2007
2008
0
2009
Source: LSH Research
Chart 7
UK industrial market availability by size m sq ft >100,000
above. New built stock in this sector of
10,000-99,999
<10,000
the market accounts for 28% of total availability in that size band. • A further 12% (38m sq ft) of availability
350 300
is in units of 50,001 to 100,000 sq ft. 250
• The largest increase in stock on the market occurred in buildings of between 10,001
200
to 100,000 sq ft which has increased by almost 50% over the past 12 months. • There is over 73m sq ft of floor space on
150 100
the market in small business units (below 10,000 sq ft), almost 23% of total stock on the market.
Regional spread of availability • The largest increase in availability has occurred in the northern regions, where floor space on the market has increased by 34%.
50 0
2005
2006
2007
2008
2009
Source: LSH Research
Chart 8
Availability by size 2009 %
• Most of the increase in availability in the north has occurred in the North West and Yorkshire & The Humber, whilst the North East region has seen only a 1% increase. • As with the north of the UK, the south has also seen a large jump in space on the market, rising by 30%. The increase in southern availability is almost wholly attributable to large rises in London and the South East. • The South West region has seen availability
< 5,000 11% 5,001-10,000 12%
decline and is the only region to experience
10,001-25,000 20%
a fall in availability.
25,001-50,000 16%
• The Midlands regions saw a 5% rise in
50,001-100,000 12% >100,000 29%
availability as the amount of new floor space in the East and West Midlands
Source: LSH Research
declined significantly. Lambert Smith Hampton / 5
National Industrial and Distribution Report / 2010 / Overview
Overview continued
Regional availability rates
Rental value growth
• The availability rate in the UK industrial
• Industrial rental values fell by -4.5% in
market increased to 8.9% of total
2009, as the effects of the recession took
industrial floor space from 7.1% at the
its toll on both the manufacturing and
end of 2008 – Chart 9.
distribution sectors – Chart 10.
• There is a large spread of availability rates
• The distribution market saw a larger decline
across the regions, from 5.0% in the South
than the industrial market as a whole, with
West to 15.7% in the West Midlands.
rental values falling by -5.3% as problems in the retail sector continued to impact.
• The lowest availability rates are concentrated in the southern regions, with
• The fall in rental values are expected to
London, the South East, the South West
continue through to mid/late 2011
and Eastern all with rates below the
although the pace of decline will ease.
national average.
• The declines in the industrial sector will be
• Higher availability is focused around the
significantly less than in the early 1990’s cycle
Midlands and Scotland, all of these areas
when rental values fell by a total of -22.5%.
having availability rates in double figures.
• The current downturn is expected to see rental values decline by -8.5%.
The current downturn is expected to see rental values decline by -8.5%.
Chart 9
Regional availability rates %
South West Eastern South East North East Yorkshire & The Humber UK Average Wales North West London East Midlands Scotland West Midlands 0
2
4
6
8
10
12
14
16
18
Source: LSH Research
Chart 10
Rental forecasts % annually Standard industrial
Distribution warehouse
15
10
5
0
-5
-10
-15
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 (f) (f) (f) (f) (f) Source: LSH Research
6 / Lambert Smith Hampton
National Industrial and Distribution Report / 2010 / Distribution
• Whilst each of these regions also has a greater
regions have a stronger representation
amount of new, large unit floor space, the
of available floor space in the 50,001
West Midlands and North West have a higher
to 100,000 sq ft size band, accounting
2009 has been an interesting year for the
concentration of second-hand floor space,
for 27% of overall availability.
large unit distribution warehouse market.
73% and 74% relative to overall availability.
Distribution
Take-up
At the start of 2009 demand was almost non existent and values were falling.
Large building availability by unit size
By the end of the year, demand picked up
• The availability of buildings of 100,000 sq ft
markedly leading some commentators to
and above has increased over the past 12
in the second six months, resulting in
suggest the market is on the verge of
months but this is wholly due to the release
take-up of 20m sq ft for the year as a
speculative development once again and
of second-hand stock on the market.
whole – Chart 15.
the return of rental growth, in some areas, is a distinct possibility. The main focus of demand has been from the retail sector, with the major retailers and grocers continuing their drive towards achieving the perfect supply chain. This year has also seen the emergence of waste and recycling as a major sector demanding space. The level of demand expected from this sector is significant and, encouragingly, many operators can fit within standard
• Following a disappointing first half of the year, take-up of larger buildings increased
• In addition to the 93m sq ft of floor space
• Take-up was down -12% on the previous
in 100,000 sq ft plus units, there is a
year’s total but the recent trend looks
further 44m sq ft in units of 50,001 to
promising for the coming 12 months,
100,000 sq ft – Chart 13.
although the supply of new built stock in this area of the market remains tight.
• Supply in the larger floor space market, as with most other size bands, is
• Almost one-third of all take-up was of grade
dominated by the principal Midlands and
A stock, as tenants were able to secure
northern regions, although the southern
good-quality buildings on competitive terms.
Chart 11
Large building (>100,000 sq ft) availability by grade % Second-hand
warehouse premises.
New
Given the shortage of larger units in some areas, it is not unrealistic to expect rental growth and some speculative development returning to selected parts of the UK in 2010.
2008
Supply • The availability of buildings of 100,000 sq ft and above increased for the second year in a row, rising by 18% over the year
2009
to end 2009 at 93m sq ft. • The share of floor space on the market accounted for by new stock, fell to 28% of total built stock from 38% at the end of 2008 – Chart 11. • New floor space on the market accounted
25
0
50
75
100
Source: LSH Research Chart 12
Large building (>100,000 sq ft) availability by region and grade m sq ft
for 26.3m sq ft of accommodation, 44% Second-hand
of total new stock on the market.
Availability by region
New
25
• The majority of regions have seen an increase in large unit availability over the
20
past 12 months with Scotland, Wales and the North West seeing the largest increases
15
of space on the market – Chart 12. • The South West and Eastern regions have
10
seen large unit availability decline, largely because of the lower than average release
5
of second-hand space onto the market. • More than 60% of available big shed units are in the Midlands, the North West and Yorkshire & The Humber regions. This is broadly in line with these region’s share
0
on nd Lo
t as hE ut So
Source: LSH Research
rn ste Ea
t t st er ds ds es es Ea an an W mb hW idl idl rth Hu rth o ut M M e o o N t N S st Th es Ea W e& hir s rk Yo
s ale W
d lan ot Sc
*Grading not available
of availability registered in 2008. Lambert Smith Hampton / 7
National Industrial and Distribution Report / 2010 / Distribution
Distribution continued
Chart 13
Large building (>50,000 sq ft) availability by region and size m sq ft 50,001-100,000
>250,001
100,001 -250,000
30
25
20
15
10 Chart 14 5
Geographical spread of large new unit availability %
0
on nd Lo
st Ea th u So
rn ste Ea
Source: LSH Research
t t r s s st es es be nd nd Ea um dla dla th hW hW i i r t t H r o u M e N tM No So st Th es Ea & W ire h s rk Yo
s ale W
d lan ot Sc
Chart 15
Large building (>100,000 sq ft) take-up by grade m sq ft Second-hand
New
London 6% South East 8%
2008
Eastern 5% South West 3% East Midlands 21% West Midlands 13% Yorkshire & The Humber 19% North West 19%
2009
North East 5% Wales 1% Scotland 0% Source: LSH Research
5
0
10
15
20
25
Source: LSH Research
Chart 16
Large building (>100,000 sq ft) take-up by region and grade m sq ft Second-hand
5.0 4.5 4.0
Take-up of larger buildings increased in the second six months of 2009.
3.5 3.0 2.5 2.0 1.5 1.0 0.5 0
on nd Lo
t as hE ut o S
Source: LSH Research
8 / Lambert Smith Hampton
rn ste Ea
t t r st ds ds es es be Ea an an W W um idl idl rth th th H r o u M M e N t No So st Th es Ea W e& hir s rk Yo
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d lan ot Sc
New
National Industrial and Distribution Report / 2010 / Distribution
Take-up by region • The Midlands, North West and Yorkshire
Chart 17
Large building (>50,000 sq ft) take-up by region and size m sq ft
& The Humber dominated activity,
50,001-100,000
100,001 -250,000
>250,001
accounting for more than two-thirds of the take-up of big shed units – Chart 16.
7
• The largest transaction during the year was
6
the 620,000 sq ft sale of The Vault, Speke, to B&M Bargains for £18.5m. The building was speculatively built by Rockpoint and
5 4
had stood empty since completion. • Take-up in the London and South East markets continues to be held back by
3 2
shortages of supply of larger buildings. 1
Take-up by size • Chart 17 shows the spread of activity across
0
on nd Lo
the regions by size of transaction. For the purposes of this analysis transactions in the
st Ea th u So
rn ste Ea
Source: LSH Research
t t r s s st es es be nd nd Ea um dla dla th hW hW i i r t t H r u M e No tM No So st Th es Ea & W ire h s rk Yo
s ale W
d lan ot Sc
50,001-100,000 sq ft size category have also been included, as the number of deals in this market has shown an upturn. • Take-up of units larger than 100,000 sq ft accounted for 25% of overall transactions in the UK industrial market. An additional
• Whilst the northern and Midlands regions dominate activity in the 100,000 sq ft and above market, take-up in the 50,001 to 100,000 sq ft market is relatively evenly spread throughout the UK. • The southern regions account for 20% of
11m sq ft (13% of total take-up) of
transactions of over 100,000 sq ft but the figure
activity was recorded on units of 50,001
is closer to 30% when looking at deals completed
to 100,000 sq ft.
in the 50,001 to 100,000 sq ft size band.
Table 1
Key deals Location The Vault, Speke, Liverpool ProLogis Park, Newhouse Pearson Distribution Unit, Rugby DC3, ProLogis Park, Stoke Manor Park, 360, Runcorn Radial 64, Washington Derby Commercial Park, Derby Verdus, Greenford DC4, ProLogis Park, Midpoint, Birmingham D1, ProLogis Park, Coventry DC3, ProLogis Park, Coventry Buckingham Avenue, Slough 2 Drum Park, Chester le Street Swan Valley, Northampton Unit A, Kings Mill Road East, Sutton-in-Ashfield Mistral 260, Hemel Hempstead ProLogis Wakefield, Europort, Wakefield Pioneer Point, Ellesmere Port DC3, ProLogis Park, Midpoint, Birmingham South West Wales Distribution Centre, Kenfig, Port Talbot Saxon Way East, Corby Fusion, Trafford Park, Trafford Broadway 21, Oldham
Size (sq ft) 620,000 504,000 446,000 381,600 367,000 350,000 336,000 325,000 313,771 310,400 310,000 300,000 271,000 270,000 264,450 260,000 255,936 240,000 237,134 233,177 230,000 210,000 210,000
Rent (£psf) £27.00 (Freehold) £4.50 £64.70 (Freehold) n/a £4.50 n/a n/a n/a n/a £5.50 £5.25 n/a £4.25 n/a £4.25 Freehold £4.50 £4.25 n/a n/a £20.00 (Freehold) £4.75 £4.25
Tenant B&M Bargains Co-operative Group Pearson Marks & Spencer Eddie Stobart BAE Systems Cyclamax (pre-let) Think Thark Productions The Pallet Network DHL Halfords data centre operator Co-operative Group Royal Mail Eurocell Building Products Confidential VOW Interserve Biffa Waste Services Bunzl Jayplas Biffa Waste Services Great Bear Distribution
Source: LSH Research
Lambert Smith Hampton / 9
National Industrial and Distribution Report / 2010 / Small and mid-size business units
Small and mid-size business units
The small business sector has been an
With more small business unit occupiers
important driver to the industrial market
turning to leasing rather than purchase,
in recent years with the number of small
rental values in the small business unit
unit schemes increasing and freehold
market have proved to be more resilient
purchase becoming a viable option
to the economic downturn than the
for occupiers.
larger distribution sector.
This aspect of the market suffered
Take-up in the small business sector
considerably in the economic downturn,
â&#x20AC;˘ The take-up of small business units
as the availability of debt finance made
(<10,000 sq ft) totalled some 26.6m sq ft
the purchase of units more difficult for
in 2009, an increase of 34% on the
small businesses.
previous yearâ&#x20AC;&#x2122;s total.
Chart 18
Take-up of small business units 2008-09 m sq ft 2008
2009
4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0
on nd Lo
t as hE ut o S
rn ste Ea
Source: LSH Research
t t r st ds ds es es be Ea an an W W um idl idl rth th th H r o u M M e N t No So st Th es Ea & W ire h s rk Yo
Chart 19
Regional spread of small business units (<10,000 sq ft) take-up %
Chart 20 Scotland 8%
d lan ot Sc
Regional spread of mid-sized business units (10,001-50,000 sq ft) take-up %
London 9%
London 7%
South East 15%
South East 14%
Eastern 9%
Eastern 11%
South West 9%
South West 8%
East Midlands 8%
East Midlands 8%
West Midlands 13%
West Midlands 13%
Yorkshire & The Humber 9%
Yorkshire & The Humber 10%
North West 13%
North West 14%
North East 3%
North East 5%
Wales 4%
Wales 5%
Scotland 8%
Scotland 5%
Source: LSH Research
10 / Lambert Smith Hampton
s ale W
Source: LSH Research
National Industrial and Distribution Report / 2010 / Small and mid-size business units
• The main focus of activity in the small business market is in the south (London,
Chart 21
Availability of small business units 2008-09 (<10,000 sq ft) m sq ft
South East, South West and Eastern
2008
2009
regions) of the UK, which accounted for 11m sq ft, 41% of overall take-up, in this
12
sector of the market. 10
• The main focus of activity in this sector of the market has been on second-hand space
8
which accounted for almost 80% of all take-up, with the principal focus on leasing
6
rather than the purchase of freehold units. 4
Take-up in the mid-sized business sector • The mid-sized business unit market follows
2
0
a similar trend to the small business sector,
on nd Lo
with the south of the UK dominant in the level of activity measured. • Total take-up of 27.6m sq ft was registered in 2009, although shortages of stock
st Ea th u So
rn ste Ea
Source: LSH Research
t t r st ds ds es es be Ea an an W W um idl idl rth th th H r o u M M e N t No So st Th es Ea & W ire h s rk Yo
d lan ot Sc
s ale W
Chart 22
Small and mid-sized business units availability m sq ft
have proved to be a major limitation to
Second-hand
New
increased letting activity. 20
Small and mid-sized business unit availability • The availability of small business units has risen across all regions of the UK as smaller businesses have struggled during the recession. The only region where availability of small business units has not increased
18 16 14 12 10 8
is the South West, where there has been
6
a slight decrease.
4
• Total industrial floor space of below 10,000 sq ft amounts to 71m sq ft, an increase of
2 0
50% on the previous year’s total. • The main increases in availability occurred
on nd Lo
st Ea th u So
rn ste Ea
Source: LSH Research
in the Eastern region and Wales, where small business availability has doubled. • In the mid-sized market, total available
d lan ot Sc
s ale W
Chart 23
Availability of mid-sized business units by grade m sq ft Small business units <10,000
industrial floor space at the end of 2009 amounted to 112m sq ft with only 13%
t t r st ds ds es es be Ea an an W um th hW idl idl r t th H r o u M e N tM No So st Th es Ea & W ire h s rk Yo
Mid-sized business units
35
(15m sq ft) of the available floor space in new built units. • Acute shortages of stock are noted in the
30 25
25,000 to 49,999 sq ft size band where only 6.4m sq ft of floor space is currently being marketed.
20 15
• These shortages are particularly evident in the south of the UK where just over 2m sq ft of new floor space is available, whilst
10 5
take-up in 2009 amounted to 4m sq ft. 0
on nd Lo
t as hE ut o S
Source: LSH Research
rn ste Ea
t t st er ds ds es es Ea an an W mb hW idl idl rth Hu rth o ut M M e o o N t N S st Th es Ea W e& hir s rk Yo
d lan ot Sc
s ale W
Lambert Smith Hampton / 11
National Industrial and Distribution Report / 2010 / Investment
Investment • Given the challenges facing the wider economy and the UK’s manufacturing, distribution and industrial sector in particular, it is important to note the resilient performance of the sector compared with other property sectors in the 12 months to December 2009 – Table 2. • The sector’s performance and investment characteristics contributed to an increased
Table 2
Investment performance Sector
Total return
Capital growth
Income return
Rental growth
Void rate
Industrial
3.82%
(4.47%)
8.64%
(-4.89%)
17.2%
Retail Offices
3.4%
(4.26%)
7.97%
(-6.92%)
7.5%
(0.74%)
(8.42%)
8.32%
(-%)
16.0%
2.18%
(5.61%)
8.21%
(8.36%)
12.1%
Brixton Plc
Value m 334.2
Number of deals 5
All Property Source: IPO UK Monthly Index
Table 3
Table 4
Top buyers
Top sellers
Purchasers
Number of deals 5
Sellers
compared with the previous year, with
AEW Europe
Value m 219.1
total estimated volume rising by 21% from
Harbert Management Corporation
Segro Plc
316.6
10
168.2
2
PRUPIM
314.7
12
Max Property Group
232.1
1
Standard Life
289.8
11
Rock Point Capital/ Angle Sea Capital
140.0
1
Ernst and Young (Receivers)
232.1
1
Threadneedle Property
114.4
8
volume of industrial transactions when
£2.905bn to £3.522bn. This is the second year this has occurred with the industrial market share of transactions as a whole moving from 9% in 2007 to 14% of all transactions in 2009 – Tables 3 and 4.
Source: LSH Research
Source: LSH Research
• This market activity created volatile yield movement across this sector as is shown in the table 5. • The addition of significant demand from
Table 5
Net initial yield on transactions Region
Q4 2008 Q2 2009
Q4 2009
institutional investors in the second half of
South East
7.01
7.95
6.64
the year is regarded as the main contributor
Rest of UK
8.69
9.14
8.57
for the yield contraction. Based on recent
Distribution warehousing
6.93
8.57
6.99
All Industrial
7.56
8.48
7.36
activity, we are of the opinion that prime distribution warehousing yields are now 6.5% for good-quality buildings in good
Source: LSH Research
locations with circa 15 years unexpired terms. We are of the opinion that prime
Looking forward
institutional demand for property as a
multi-let industrial estates in metropolitan
• Given the recent industrial sector
whole, and the pursuit of multi-let
locations, benefiting from high quality
performance and the prevailing economic
opportunities will increase the demand for
specification and average weighted
conditions, we anticipate continued
industrial estates and that “best in class”
unexpired terms in excess of five years
demand for prime industrial property with
estates in more secondary locations will
are now at 6.75%.
particular emphasis on distribution
benefit from yield contraction over the next
warehousing and metropolitan city
12 months. This focus on a relatively small
multi-let industrials.
number of estates will result in sporadic
Market activity created volatile yield movement across this sector.
• We regard the imminent general election
yield evidence in the secondary market.
and the likelihood of increased taxation
• We do envisage a combination of strong
and the continuing risk of a double dip
industrial sector investment demand and
recession to be the major contributor for
the gradual improvement in debt lending
the limited demand currently shown for
conditions combining to create sufficient
secondary industrial assets. Whilst the
opportunity to trigger a controlled release
secondary market experiences a continuing
of secondary industrial assets from the
lack of occupational demand and high void
impaired loan books of the major banks
rate, we anticipate the volume of activity
during the second half of 2010.
in the secondary market to remain low. However, we believe that the significant
12 / Lambert Smith Hampton
istics National Industrial & Distribution Statistics Na
rch 2010 March 2010 March 2010 March 2010 March 2010 March 2010 March 2010 March
Overview The industrial market has shown a degree of diversity over the past 12 months with some regions showing the first signs of recovery whilst other markets are still feeling the full effects of the economic slowdown. In general, the Midlands markets have fared the best, with take-up levels showing a significant improvement from the levels achieved in 2008. The southern markets saw letting activity reduce, although this was largely due to shortages of supply in particular areas for new built stock. Availability rates increased across most regions, although this was largely due to the increase in second-hand stock released onto the market. In general, the Midlands and northern regions have the highest availability rates, an overhang from previous years of development activity.
Lambert Smith Hampton / 13 www.lsh.co.uk
London Executive summary • Take-up in London increased to 6.3m sq ft in 2009, a rise of 21% from the five-year low recorded in 2008, but still some 10% below the five-year average for the region. • Availability increased to 26.2m sq ft, representing 9.8% of total industrial floor space in the region.
The levels of new built stock on the market remained relatively stable, with the release of secondhand space onto the market making the major contribution to rising availability. • The main increase in availability has occurred outside of the principal industrial locations in the region.
Heathrow/Park Royal • The occupation of LHR1 by Geodis, early in 2009, was the largest deal in Heathrow for two years. Subsequently, ProLogis Park and X2 secured tenants as the longstanding units began to attract the incentivised tenants.
The market came back strongly at the end of 2009, leading us to conclude that there could be room for speculative development over the next 12 months.
• The units at Cargo South have seen a reduction in their quoting rents to £12.95 per sq ft which is an indicator that the Heathrow market has not escaped the economic slowdown. Headline rents have generally decreased by approximately £1.50 per sq ft from early 2009. • With the fall in stock on the market over the past 12 months, the Heathrow market could see the return of speculative development before the close of 2010. • With occupiers including Geodis, Air World Services, OCS and City Link acquiring new units around Heathrow, the amount of new available stock decreased over 2009. • Park Royal, like most areas throughout the country, has seen limited speculative development throughout 2009. An exception to this has been the Thunder and Lightning scheme developed by Canmoor with units comprising 62,280 sq ft and 106,250 sq ft. • With Royal Mail securing three units on Premier Park totalling 58,000 sq ft, the amount of new stock available in Park Royal is considerably lower than in recent years. This could favour SEGRO, which has been waiting to secure a pre-let on the former Guinness brewery site (Origin) which can accommodate a total development of 550,000 sq ft.
Enfield • The Enfield market remains robust with demand in most size ranges, albeit levels of enquiry are down on previous years. • The area’s major deal was John Lewis’ acquisition of Innova Park, Enfield, a 90,000 sq ft warehouse unit to service its internet retail offer.
Lambert Smith Hampton Research | 14
• Prime headline rents fell across most locations, resulting in an average decline of -4.2% for the region. The largest falls were recorded in Croydon and Heathrow, where values were down by -11.1% and -10.2% respectively.
• The area has seen the completion of one of the few speculative schemes, Voltage, by Canmoor Developments, and is also home to one of the few remaining sites on the North M25 with large unit potential at G Park, Mollison Avenue, Enfield.
Dartford/Thurrock and Barking/Dagenham • Whilst both sides of the Thames have seen a fair level of activity over the past 12 months, the majority of deals to the north have taken place along the A13 towards London. • Howard Tenens’ acquisition of Gazeley’s 230,000 Voltaic, scheme at Dagenham and Wolseley Group’s acquisition of ELDP at Dagenham (142,000 sq ft) are two of the largest transactions in the area. Cyclamax also purchased land at the LDA’s sustainable logistics park in Dagenham. • To the south of the Thames, activity has concentrated on Crossways and more specifically Charles Park where all units are now let on the Legal & General scheme. Larger sized units have struggled to let in the region with only one letting to Royal Mail for short-term space at Sandpit Road.
Croydon • The majority of take-up in Croydon during 2009 was focused on units of sub 10,000 sq ft. The principal location for industrial activity was along the Purley Way, A23, which connects the M25 Motorway to the south and Central London to the north. • The congestion issues around the town have again resulted in the larger industrial occupiers focusing on alternative locations. Industrial floor space in Croydon continues to be focused on smaller industrial estates catering for retailers and trade counter operators. • There was no speculative development in Croydon during 2009.
London Key deals Location Verdus, Greenford Voltaic, Dagenham
Size (sq ft) 325,000
Rent (£psf) n/a
230,000 142,000 120,000 96,563 90,000 82,683 75,310 58,000
n/a £6.50 £10.50 £11.25 £7.95 £13.60 £13.00 £11.88
ELDP, Dagenham Tera 40, Greenford LHR1, Heathrow Innova Park, Enfield X2, Heathrow DC3, ProLogis Park, Heathrow Premier Park, Park Royal
Tenant Think Thark Productions Howard Tenens Wolsley Group Tesco Geodis John Lewis Air World Services Initial City Link Royal Mail
Source: LSH Research
Availability rates across the region %
Industrial market take-up 000 sq ft Second-hand
Average
New
10,000 Heathrow 8,000 Park Royal 6,000
Enfield
Dartford/Thurrock
4,000
Barking/Dagenham 2,000 Croydon 0
2005
2006
2007
2008
0
2009
Source: LSH Research
10
5
15
Source: LSH Research
Industrial market availability 000 sq ft
Prime headline rents £ per sq ft
Second-hand
Prime
New
30,000 Heathrow
£13.25
25,000 Park Royal 20,000
Enfield
15,000
Dartford
£11.50 £8.95 £8.50
Thurrock
£7.50
10,000 Barking/Dagenham
£8.00
Croydon
£8.00
5,000
0
2005
Source: LSH Research
2006
2007
2008
0
2009
2
4
6
8
10
12
14
Source: LSH Research
www.lsh.co.uk
South East Executive summary • Availability in the South East region increased significantly over 2009 rising to 29.1m sq ft, 6.9% of industrial floor space in the region. • Almost 80% of available floor space is in second-hand accommodation, with grade A stock providing less than eight
month’s supply, based on recent take-up levels. • Take-up slowed over 2009, falling by -17.9% on the previous year’s levels of activity. The major slowdown occurred in lettings of above 50,000 sq ft where there are shortages of new grade A stock and occupiers have
become reluctant to commit. • Prime rental values have come under pressure over the year, falling by -6.1% on average, as landlords have shown a greater desire to secure lettings in order to avoid empty rates liability.
Thames Valley Markets
Milton Keynes
South Coast Markets
• The Slough market is highly polarised depending upon the size/age of the accommodation and the occupier’s precise use requirements.
• The past year has seen demand and take-up remain at below average levels. There has been reasonable take-up sub 10,000 sq ft where landlords have responded to the challenging market conditions by lowering rents and increasing flexibility on lease terms and incentives.
• As with the rest of the South East region, there is a shortage of units over 30,000 sq ft, with only six modern, detached units with self-contained secure yards available between Southampton and Portsmouth. This was evidenced at Unit 1, Royal London Park, Hedge End, where competition for the unit resulted in a letting to Scottish & Southern Energy.
• On Segro’s Slough Trading Estate, with the exception of one large letting to a data centre occupier, almost all lettings have been in the sub 5,000 sq ft range. • Other landlords in the area have taken the decision, or been forced by circumstances, to accept very low rents such as £3.00 or £4.00 per sq ft but are ensuring that such lettings are for periods of one to two years.
• Institutional landlords are taking steps to fill voids in order to enhance fund performance. Similarly, new product has also seen rents trimmed back with this space typically around £7.00 to £7.50 per sq ft headline.
• Take-up in the Reading market was dominated by three significant deals which totalled more than 115,000 sq ft. Limited speculative development over the past six years, coupled with the acquisition of these buildings, has resulted in a lack of supply of units over 30,000 sq ft.
• There has been virtually no activity on bigger distribution/manufacturing space with the largest transaction being the sale of J14 at Northfield of approximately
• Availability at the larger end of the market is well provided around Oxford, with five
Guildford
properties over 150,000 sq ft currently on the market totalling over 1m sq ft. However, with the recent letting of 101,000 sq ft at Milton Park to OKA and the sale of a 100,400 sq ft unit in Wallingford earlier in the year to the Precycle Group, there is some activity at the larger end.
67,000 sq ft, sold for redevelopment for car showroom use.
• Last year proved difficult in the Guildford market with take-up totalling 70,500 sq ft in nine transactions, 59% down on the previous year. Most of the 2009 transactions relate to second-hand buildings where the deals are generally on short leases with generous incentives and flexibility in favour of tenants. • The recent announcement by McLaren Group Automotive to expand into sports
Take-up slowed over 2009, falling by -17.9% on the previous year’s levels of activity.
Lambert Smith Hampton Research | 16
car manufacture at its Mizzens Farm site (proposed 409,000 sq ft expansion), will have a positive effect on the local economy, boosting the surrounding industrial markets. • Apart from one remaining unit at Henley Park, there is no new industrial stock available and no new development underway. The shortage of land for industrial development will constrain future supply, although opportunities exist for developers as the economy recovers.
• The Fareham and Portsmouth market is currently experiencing a good level of occupier activity bearing in mind the recession and poor economic conditions. Whilst there have been a number of lettings, transactions are slow to complete. • Occupier demand in Southampton recovered in the second half of 2009. This trend is expected to continue during 2010 although occupiers will want to see a period of business growth before fully committing to additional overheads. • Rents have generally held up with larger units letting at between £7.00 and £7.50 per sq ft, and incentives ranging from 12 to 15 month’s rent-free. Smaller units of between 1,000 sq ft and 3,000 sq ft are letting at between £8.50 and £7.50 per sq ft. • Capital values on small units have been impacted due to the lack of debt available for purchase with values down from £120.00 per sq ft to circa £90.00 per sq ft, a fall of -25%. • Looking to the future, the lack of new/goodquality stock over the next five years will result in reducing incentives and increased pressure on rents and capital values.
South East Key deals Location Buckingham Avenue, Slough Plot 1, Houndsdown Business Park, Southampton Unit 4, Avalon, Eastleigh 170 Milton Park, Abingdon Hithercroft Industrial Estate, Wallingford Unit 1, Royal London Park, Southampton Unit 18, Brunel Way, Segensworth Unit 3, Interchange Park, Portsmouth Unit 3, Worton Grange, Reading Maidstone Road, Kingston, Milton Keynes
Size (sq ft) 300,000 124,000 110,000 101,000 100,400 59,900 50,000 50,000 43,910 40,000
Rent (£psf) n/a £7.00 n/a n/a £28.00 (Freehold) £7.50 £6.25 £5.50 £7.00 £5.75
Tenant Confidential data centre occupier SCA Recycling Just Data Systems OKA Precycle Group Scottish & Southern Energy Caetano (Scottish & Southern Energy) Elmdene International DHL Fronics (option to buy)
Source: LSH Research
Availability rates across the region %
Industrial market take-up 000 sq ft Second-hand
Average
New
14,000 Reading 12,000 Slough 10,000
Oxford
8,000
Guildford
6,000
Milton Keynes Southampton
4,000 Fareham 2,000 0
Portsmouth 2005
2006
2007
2008
0
2009
Source: LSH Research
5
10
15
20
Source: LSH Research
Prime and secondary headline rents £ per sq ft
Industrial market availability 000 sq ft Second-hand
Secondary
New
Prime
35,000 Reading
£7.50
£9.00
30,000 Slough 25,000
£8.50
Oxford
20,000
Guildford
15,000
Milton Keynes
£10.00
£8.00 £8.75 £8.00 £5.00
Southampton
£9.00
£7.00 £6.50 £7.25
10,000 Fareham 5,000 0
£5.50
Portsmouth 2005
Source: LSH Research
2006
2007
2008
2009
£6.75 £6.25
0
2
4
6
£7.50 8
10
12
Source: LSH Research
www.lsh.co.uk
Eastern Executive summary • Availability in the Eastern region increased for the fifth year in a row, reaching 24.5m sq ft at the end of 2009, representing 6.4% of total industrial floor space. • The availability of larger units is focused towards second-hand space with any new space under
Hemel Hempstead/Watford • Hemel Hempstead saw a drop in take-up in 2009 to 208,976 sq ft compared to 420,177 sq ft in 2008. There were 28 transactions in total (36 in 2008). The average transaction size was a mere 7,463 sq ft (compared to 11,671 sq ft in 2008). Take-up largely reflects the profile of the existing stock, which is biased towards units under 10,000 sq ft. • The largest transaction was F&C’s Unit B, Hemel Gateway on Boundary Way at 27,764 sq ft. Three buildings remain on the market over 100,000 sq ft. The former site of the Mammoth Building, Boundary Way, of 20.22 acres, was sold by Blackstone to J Murphy & Sons for £6.425m. There remains a lack of quality buildings in the market between 20,000 and 50,000 sq ft.
Luton/Dunstable • Take-up in Luton and Dunstable was one of the worst on record, having fallen from a peak in 2006 of 1.365m sq ft, to 425,000 sq ft during 2009, a fall of 70%. Only three transactions in excess of 30,000 sq ft were concluded in the year, the largest being the forward purchase of a bespoke freehold unit of 88,000 sq ft by Measurement Technology Limited. • Demand remains stable for smaller units of less than 15,000 sq ft, but requirements for larger buildings has been patchy. • The modest improvement in enquiry levels since the beginning of the year is expected to reveal take-up during Q1 2010 of approaching 200,000 sq ft, although 90,000
Take-up across the region amounted to 7.5m sq ft, 8.0% lower than the previous year’s total figure.
Lambert Smith Hampton Research | 18
construction focused towards the smaller end of the market (<10,000 sq ft). • Take-up across the region amounted to 7.5m sq ft, 8.0% lower than the previous year’s total figure, with only one-third of floor space acquired during sq ft was concluded in a single letting to Sika at The Arenson Centre in Dunstable. • Despite availability approaching 2.75m sq ft, there is a shortage of new and modern space across most sectors, with shortages beginning to emerge for nursery units of less than 2,000 sq ft and units of between 20,000 to 25,000 sq ft both new and second-hand.
Bedford • Take-up for last year totalled 460,000 sq ft, an increase of 35% from the previous year’s levels of 340,000 sq ft, but below the longterm average.
the year in units of more than 50,000 sq ft. • Prime headline rental values fell by -3.3% on average, with the most significant declines seen in Luton (-12.9%) and Peterborough (-8.3%).
Cambridge • Take-up in the Cambridge area amounted to 695,000 sq ft in 2009, 5.5% higher than the previous year’s total of 659,000 sq ft. One of the largest deals in the area was the letting of 80,352 sq ft at Unit 3, Cardinal Park, Godmanchester, to Firstan on a 15-year lease at £4.75 per sq ft. • Headline rents have remained steady over the year but increased incentives have pushed net effective rents lower. The letting of 48,642 sq ft at Unit 23, Trafalgar Way, Bar Hill, to ADS Metals on a five-year term on a stepped rent.
• Demand remains patchy with unrefurbished, secondary stock worst affected. Aside from a
• The demand for industrial space in Cambridge has remained subdued throughout 2009,
number of very large enquiries, many of the enquiries over the last 12 months have been for units below 10,000 sq ft.
with the main focus of demand for units of 20,000 sq ft or less. There has been an increase in larger requirements of 50,000 sq ft plus, which are proving difficult to satisfy due to a lack of larger units.
• Whilst Bedford benefits from a plentiful availability of land, there are currently no speculative schemes under construction. Dualling works on the A421 are due to be completed in late 2010, meaning Bedford will sit on the best A1/M1 link north of the M25.
Peterborough • The market for smaller units (2,000 to 10,000 sq ft) has remained weak during the year, with only a handful of deals completing and availability of second-hand stock increasing as the year progressed. This picture has been repeated for medium-sized buildings (10,000 to 50,000 sq ft), where demand has also been weak. • Above 50,000 sq ft there has been greater definition in demand, particularly for units over 100,000 sq ft where the market is expected to remain buoyant. • The prospect for the smaller end of the market is less promising, where there is a large overhang of space, particularly secondhand and secondary stock. Consequently, rents are expected to remain under pressure and generous incentives are available on most transactions.
• There are a number of new industrial schemes which still have high vacancy rates.
Chelmsford • The Chelmsford market through 2009 has been typified by limited take-up and demand from occupiers of the small investor sector. There is an absence of industrial lettings across the town, compounded by limited quality stock being available within the two main industrial areas of Dukes Park and Robjohns Road. • The most significant transaction in the town during 2009 was the sale of the former Smurfit Kappa premises totalling 54,250 sq ft at 19 Robjohns Road to R&R Laundry Equipment, contracted in August 2009. • Royal & Sun Alliance is marketing Phase II at Springfield Business Park for design and build units from 10,000 sq ft, although construction has not yet started. Quoting rents are based upon £8.50 per sq ft.
Eastern Key deals Location Twinwoods Business Park, Bedford Orton Southgate, Peterborough Unit 3, Cardinal Park, Godmanchester Orton Southgate, Peterborough Cargo 10, Airport Way, Luton Woodston 19 Robjohns Road, Chelmsford Unit 23, Trafalgar Way, Bar Hill Unit B, Hemel Gateway, Hemel Hempstead Units 4-8, Maxted Park, Hemel Hempstead
Size (sq ft) 200,000
Rent (£psf) n/a
200,000 80,352 70,000 61,400 55,000 54,250 48,642 27,764 25,688
£4.50 £4.75 £3.50 n/a £4.50 £22.30 (Freehold) £3.50 (Stepped Rent) £7.25 £80.00 (Freehold)
Tenant TRE Global (pre-let) Perkins Firstan n/a 2K Manufacturing Indesit R&R Laundry Equipment ADS Metals Photologic Basmati Rice
Source: LSH Research
Industrial market take-up 000 sq ft
Availability rates across the region % Second-hand
New
Average
10,000 Hemel Hempstead 8,000
Watford St Albans
6,000
Luton/Dunstable Bedford
4,000 Peterborough Cambridge
2,000
Chelmsford 0
2005
2006
2007
2008
2009
Source: LSH Research
0
5
10
15
20
Source: LSH Research
Industrial market availability 000 sq ft
Prime and secondary headline rents £ per sq ft
Second-hand
Secondary
New
Prime
30,000 Hemel Hempstead 25,000
£6.75
Watford
£6.50
St Albans
20,000
£7.95 £8.00 £7.75
£5.75
Luton/Dunstable
£9.00
£6.75
15,000 Bedford 10,000
£5.25
Peterborough
£4.50
Cambridge
£6.25
£5.50 £6.00
£8.50
5,000 Chelmsford 0
2005
Source: LSH Research
2006
2007
2008
2009
£6.50 0
2
4
6
£8.00 8
10
Source: LSH Research
www.lsh.co.uk
South West Executive summary • Overall availability in the South West stood at 15.9m sq ft at the end of 2009, almost 6.0% of total industrial floor space in the region. Only 2.4m sq ft of current availability is grade A stock, 15% of total space on the market. • More than 1m sq ft of available grade A floor space is in buildings
of 50,000 sq ft and above, with three-quarters of this stock, by floor space, located around the Bristol area, most of which is in one building. • Take-up levels for 2009 fell by 12.5% from the previous year’s total, registering 6.2m sq ft with the majority of activity in
second-hand floor space. • Prime headline rental values remained relatively steady, falling by only -0.7% from their end 2008 levels. The major falls in rents in the region were in Swindon and Poole/Bournemouth, where values were down -7.1% and -6.7% respectively.
Bristol
Swindon
Plymouth
• Take-up fell to 2.1m sq ft in 2009, down by 25% on the previous year’s figure, due to the continued downturn in the UK economy and the lack of good-quality built stock, particularly for units in excess of 20,000 sq ft.
• Activity at the end of 2009 saw a marked turnaround in the town’s fortunes, with a number of high profile lettings, particularly in South Marston, taking a substantial amount of space out of the market.
• The Plymouth industrial market has experienced a difficult year with a number of large facilities being released onto the market and limited take-up.
• Two large transactions accounted for 30% of take-up during the year, the 324,442
• Overall take-up for 2009 amounted to just over 600,000 sq ft, down by 14% on the previous year’s total, with the downturn
sq ft letting to GKN at G Park, Avonmouth and the 300,000 sq ft letting to NES at Avonmouth Logistics Centre.
largely attributable to the problems in the car industry which adversely affected Honda, one of Swindon’s major occupiers.
• There is only one large distribution unit left in the area, ProLogis’ 550,000 sq ft facility
• Availability has increased over the year, standing at 11.4% of total built industrial floor space, with the majority of the increase in availability due to the release
at Cabot Park, which accounts for almost three-quarters of the available units of 50,000 sq ft and above.
of second-hand stock onto the market.
• Demand for second-hand floor space is expected to remain steady during the next
• New grade A accommodation is severely restricted, although Vygon is to commence
12 months, although there are several larger requirements currently in the market for distribution space, most notably Asda and the Co-operative, which are rumoured to be in the market for bespoke regional distribution centres.
building an initial 250,000 sq ft warehouse for its own occupation on the recently acquired Motorola site, Groundwell, whilst Gazeley has reported strong interest for its 1.4m sq ft scheme at South Marston.
• Headline rents have remained steady at £7.00 per sq ft, largely due to the lack of speculative development, although tenant incentives have typically increased. Goodquality, second-hand rents have remained at £5.00 per sq ft.
Exeter • Exeter remains a very tight market, with limited demand but a heavily restricted supply of industrial floor space, particularly for units in excess of 20,000 sq ft. • Take-up during 2009 was almost entirely made up of activity in the second-hand market, the largest transaction being the 40,332 sq ft acquisition of the Express and
Only 2.4m sq ft of current availability is in grade A stock, 15% of total space on the market.
Lambert Smith Hampton Research | 20
Echo production and distribution premises at Sowton by Scottish & Southern Electric. • The current supply constraints are unlikely to change in the short term, with no new development scheduled. The main area of available land suitable for immediate industrial development is to the north of the city at Willand and Cullompton.
• Overall availability now stands at 13.5% of total built stock, which equates to just over 1m sq ft. A further release of space onto the market during 2010 is expected with a number of larger occupiers in the area having announced their intentions to close facilities. • Overall take-up amounted to 200,000 sq ft, with the largest transaction the 74,998 sq ft acquisition of Tamar House by Plymouth City Council, which is now back on the market.
Poole/Bournemouth • As with the majority of the country, the Poole and Bournemouth market over the last 12 months has experienced a reduced number of transactions and a shift in rental values. This has all added to a reduction in values generally in the Poole area. • There is a lack of good-quality units of between 10,000 to 30,000 sq ft in the Poole/Bournemouth conurbation, particularly freehold buildings which have remained popular within the conurbation. • Rental values on secondary units have been affected due to the lack of large enquiries. However, the small freehold market has still proven popular with Ankers and Rawlings’ new scheme at Concept Park achieving prices in the region of £150.00 per sq ft on 2,000 sq ft two-storey business units.
South West Key deals Location 5010/5020, G Park, Avonmouth 10c Broadmoor Road, South Marston, Swindon 11d Broadmoor Road, South Marston, Swindon Portbury One, Portbury Walford Cross, Taunton Airways House, Thornbury Bushacre Business Park, Weston Super Mare Tamar House, Plymouth Cofton Road, Marsh Barton, Exeter Fleece Corner Industrial Estate, Poole
Size (sq ft) 324,442 100,556 89,115 86,000 78,911 78,699 78,000 74,998 58,990 42,641
Rent (£psf) £5.75 £3.25 £3.25 £35.00 (Freehold) £3.00 £70.00 (Freehold) £38.00 (Freehold) £21.60 (Freehold) £5.50 £4.00
Tenant GKN TDG TDG LDT Peter Green Haulage Europa Group Weston College Plymouth City Council Unichem Lush Manufacturing
Source: LSH Research
Availability rates across the region %
Industrial market take-up 000 sq ft Second-hand
New
Average
12,000 Bristol 10,000 Swindon
8,000
6,000
Exeter
4,000
Plymouth
2,000 Poole/Bournemouth 0
2005
2006
2007
2008
2009
Source: LSH Research
10
5
0
15
Source: LSH Research
Prime and secondary headline rents £ per sq ft
Industrial market availability 000 sq ft Second-hand
Secondary
New
Prime
20,000 £5.00
Bristol
17,500
£7.00
15,000
Swindon
£4.25
£6.50
12,500 £4.75
Exeter
10,000
£6.50
7,500
Plymouth
£4.25
£6.25
5,000 2,500 0
Poole/Bournemouth 2005
Source: LSH Research
2006
2007
2008
0
2009
1
2
3
4
5
£6.00
£7.00
6
7
8
Source: LSH Research
www.lsh.co.uk
East Midlands Executive summary • Take-up levels increased in the East Midlands region with total activity of 10.1m sq ft, the second highest total for the region over the past ten years. Activity was dominated by take-up of units above 50,000 sq ft, which accounted for 57% of the total.
• Availability increased during the year, rising by 6.8% to 27.3m sq ft, with almost 50% of the total in units of 50,000 sq ft and above.
• Prime industrial rents fell by -1.3% on average across the region, with the largest falls recorded in Wellingborough and Leicester, where the market • The availability rate increased to adjusted by -4.8% and -4.3% 13.1% for the region, with most of respectively. the principal industrial locations having rates below the regional average.
Northamptonshire/Rugby
Leicester
• The number of transactions completing in the Northamptonshire and Rugby markets has remained strong during 2009. Overall take-up for the year was broadly comparable to the levels of activity recorded in the previous year at 1.7m sq ft.
• Demand over the past 12 months has been focused on leasing good second-hand space of sub 10,000 sq ft on flexible terms, although demand strengthen from owneroccupiers towards the end of the year. Focus remains on the low and mid levels of the market as opposed to the more expensive modern new stock.
• Many specialist manufacturers have thrived during the recession and, as a result, there are a number of larger requirements in the market. • Due to the lack of industrial land in the area, only two schemes have provided new industrial units, the first being Cedar House’s Prospect Park at Swift Valley. • The other major scheme to be recently completed is the iQuarter scheme at Central Park, Rugby. It is interesting to note that the medium to large size units on the iQuarter scheme are the most successful, highlighting the continued demand by medium-sized businesses for strategically located premises. • The lack of new supply looks likely to mean that medium-sized business requirements will not be met, and the lack of new development looks likely to limit take-up during 2010. Grade A accommodation is now in short supply.
• Poorer quality stock is very hard to let. There has been a dearth of deals on modern motorway distribution units compared to previous years. • Two deals at the very end of the year provide a positive note; 96,000 sq ft let at Logistics Park, Hinckley and the reported 900,000 sq ft pre-let agreed to M&S by Clowes/First Industrial Developments at East Midlands Distribution Centre. • We believe 2010 and beyond will see demand returning for modern units from owner-occupiers. Developers who have the foresight/nerve to build speculative for 2011 may well reap the benefit, although development is likely to be restricted to small units. Land shortages will become a greater issue as the supply of new built stock becomes an issue.
Nottingham/Derby
Activity was dominated by take-up of units above 50,000 sq ft, which accounted for 57% of the total.
Lambert Smith Hampton Research | 22
• The market is seeing the majority of activity in the 5,000 to 10,000 sq ft range, with a good supply of predominantly second-hand stock available on the market. The largest transaction in the area was the 336,000 sq ft pre-let to Cylclamax at Derby Commercial Park. • Traditional industrial areas are performing best, for example ring road locations and M1 arterial routes. The 20,000 to 50,000 sq ft size range is very limited in demand and numerous buildings remain unoccupied despite good incentives being openly marketed.
• Leases terms are very flexible, favouring tenants. Many deals are structured with a stepped rental pattern whereby the tenant benefits from a “concessionary” rent over the first three years, with the rental levels increasing back in line to market levels for review after five years. • Numerous requirements remain in existence for contract-led storage facilities upwards of 100,000 sq ft. However, many of these occupiers are footloose and will consider locations throughout the Midlands and South Yorkshire area. Langley 255 is the only large unit available in close proximity to Nottingham providing 255,000 sq ft of modern, high bay warehouse. • More positively, three large units are potentially being taken out of the market: Eurocell has completed on 264,000 sq ft at J28; Bell Fruit is believed to be in negotiations on 180,000 sq ft on Glaisdale Drive and Fiege is close to taking 244,000 sq ft at Denby Hall. • Other stock is essentially second-hand and falls short of the ideal specification. Like many other centres, speculative building is not being considered. Occupiers are aware of their position in the market, they can secure well-structured and incentivised deals on second-hand premises and, as such, new stock can’t compete.
East Midlands Key deals Location Pearson Distribution Unit, Rugby Derby Commercial Park, Derby Swan Valley, Northampton Unit A, Kings Mill Road East, Sutton-in-Ashfield 400 Swan Valley, Northampton Saxon Way East, Corby Eurohub, Corby Unit 3, Northampton Distribution Centre, Northampton Sinclair Drive, Wellingborough Unit 3, Logistics Park, Hinckley 19 Meridian Business Park, Leicester
Size (sq ft) 446,000 336,000 270,000 264,450 240,000 230,000 150,000 124,148 121,000 96,500 84,620
Rent (£psf) £64.70 (Freehold) n/a n/a £4.25 n/a £20.00 (Freehold) £4.75 n/a £4.00 £5.50 £4.50
Tenant Pearson Cyclamax (pre-let) Royal Mail Eurocell Building Products Royal Mail Jayplas Confidential SEKO n/a Armstrongs J P Boden
Source: LSH Research
Industrial market take-up 000 sq ft
Availability rates across the region % Second-hand
Average
New
12,000 Northampton 10,000 Daventry 8,000
Wellingborough Rugby
6,000
Leicester
4,000
Nottingham 2,000 Derby 0
2005
2006
2007
2008
10
5
0
2009
Source: LSH Research
15
Source: LSH Research
Prime and secondary headline rents £ per sq ft
Industrial market availability 000 sq ft Second-hand
Secondary
New
Prime
30,000 Northampton
£6.50
25,000
20,000
Daventry
£5.00
Wellingborough
£5.00
Rugby
15,000
£5.75
Leicester
10,000
£4.50
£5.50
Nottingham
£4.50 £5.00
Derby
£4.50 £5.00
5,000
0
2005
Source: LSH Research
2006
2007
2008
2009
0
1
2
3
4
5
6
7
Source: LSH Research
www.lsh.co.uk
West Midlands Executive summary • Availability increased in the West Midlands over 2009, ending the year at 36.2m sq ft, 15.7% of total industrial floor space in the region. Grade A stock accounts for 17% of total stock on the market, with only small schemes currently under construction. • Current availability is dominated by buildings of above 50,000 sq ft
which account for 48% of total floor space currently being marketed, contained in 148 buildings spread across the region. • Take-up in 2009 was significantly higher than the previous year, with 11.8m sq ft of activity. The second half of the year accounted for a marginally higher proportion of the year’s take-up levels, with larger
Birmingham • The majority of take-up in the Birmingham market was concentrated in big shed deals, with five lettings accounting for 1.05m sq ft. The largest of these was the 313,771 sq ft letting at ProLogis Park, Midpoint, to The Pallet Network.
Take-up in 2009 was significantly higher than the previous year
• There has been good uptake of older secondary stock but only in buildings where landlords have priced competitively. • Despite the strong take-up of large buildings around the city, there remains a good supply of units of 100,000 sq ft and above, the majority of these concentrated in the Erdington and Witton areas. There is a shortage of larger distribution facilities. • There is a good supply of existing mid-sized modern buildings, both leasehold and freehold, with a range of design and build opportunities across the Birmingham area. • There was no speculative development in the Birmingham area during 2009, and this looks likely to continue in 2010.
transactions registering 2.9m sq ft of acquisitions. • Prime rental values have fallen across the region by -4.5% on average, with rents in Staffordshire seeing the largest falls; Stoke on Trent recorded a 5.0% fall and Burton on Trent a -4.8% fall.
• There are a number of buildings, new and second-hand, of over 100,000 sq ft available in Coventry. Furthermore, with Lyons Park (former Jaguar Browns Lane) and Ryton, the city has good provision for design and build packages. • As with 2008, there has been a low level of take-up of smaller buildings within Coventry, although the lack of new development is ensuring that current availability in this sector of the market only increased marginally. • Overall availability stands at 10.4% of total built stock, below the regional average.
Staffordshire • Take-up in Staffordshire has been dominated by lettings of new speculative units at ProLogis Park, Stafford and Stoke, which helped to push overall occupational market activity above the previous year’s total. • The dominance of activity in larger transactions during 2009 contrasts with the previous year, where the majority of activity was focused on units of under 20,000 sq ft.
Coventry • As with Birmingham, there was limited take-up of space in the first half of 2009. However, lettings of two 310,000 sq ft buildings at ProLogis Park in the fourth quarter to DHL and Halfords provided a late surge of activity.
• At year-end, there remained 2.5m sq ft of large-scale distribution buildings available in Staffordshire in six buildings in Stoke, Burton and Rugeley, albeit Opus Axis, Burton (460,000 sq ft) was sold early in 2010. • There remain a range of design and build opportunities for occupiers across the county. • The overall availability rate across Staffordshire stood at around 15.1%, broadly in line with the regional average.
Lambert Smith Hampton Research | 24
West Midlands Key deals Location DC3, ProLogis Park, Stoke DC4, ProLogis Park, Midpoint, Birmingham D1, ProLogis Park, Coventry DC31, ProLogis Park, Coventry DC3, ProLogis Park, Midpoint, Birmingham Big Blue, Deykin Avenue, Birmingham Ice Cube, Faraday Avenue, Hams Hall, Birmingham Barton 150, Barton under Needwood DC2, ProLogis Park, Stafford Whetmore Road, Burton
Size (sq ft) 381,600 313,771 310,400 310,000 237,134 212,165 197,623 150,421 127,845 93,243
Rent (£psf) n/a n/a £5.50 £5.25 n/a £3.50 n/a n/a n/a n/a
Tenant Marks & Spencer The Pallet Network DHL Halfords Biffa Waste Services WH Smith Confidential Ceva Logistics WWRD UK Confidential
Source: LSH Research
Availability rates across the region %
Industrial market take-up 000 sq ft Second-hand
Average
New
16,000 Birmingham
14,000 12,000
Coventry
10,000 8,000
Burton on Trent (East Staffordshire)
6,000 4,000 2,000 0
Stoke on Trent 2005
2006
2007
2008
Source: LSH Research
10
5
0
2009
15
20
Source: LSH Research
Prime and secondary headline rents £ per sq ft
Industrial market availability 000 sq ft Second-hand
Secondary
New
Prime
40,000 Birmingham
35,000
£5.10
£5.75
30,000 Coventry
25,000
£4.75
£5.50
20,000 Burton on Trent (East Staffordshire)
15,000
£4.25
£5.00
10,000 Stoke on Trent
5,000 0
2005
Source: LSH Research
2006
2007
2008
£4.00 0
2009
1
2
3
4
£4.75 5
6
Source: LSH Research
www.lsh.co.uk
Yorkshire & The Humber Executive summary • Yorkshire & The Humber is characterised by the differences between the industrial markets of South and West Yorkshire. • Whilst South Yorkshire has a significant oversupply of larger distribution units, West Yorkshire has a shortage of facilities.
Occupational market activity increased in Yorkshire & The Humber during 2009, with 8.1m sq ft of transactions.
Overall availability in the two sub regions is 8.8% and 6.6% respectively.
Yorkshire recorded an increase in take-up levels.
• Occupational market activity • Despite the strong activity, prime increased in Yorkshire & The Humber rental values fell by -6.0% on during 2009, with 8.1m sq ft of average, with Rotherham (-13.6%), transactions, an increase of 7.0% Doncaster (-5.0%) and Hull (-5.0%) over the previous year’s total. Both seeing the largest falls. South and West
South Yorkshire
West Yorkshire
• South Yorkshire still has an oversupply of large distribution units with the majority of supply located around the M1 and M18 Corridors. The oversupply is attributable to the scale of speculative development which has taken place in previous years.
• Unlike the South Yorkshire market, West Yorkshire is characterised by a shortage of larger distribution facilities.
• Landlords in this sector of the market are offering increased incentive packages to prospective tenants and this trend is expected to continue into 2010. • Small to medium-sized units continue to perform well with a good amount of activity and demand for modern units within this size range in prime locations. • The Sheffield industrial market has benefited from the flight to prime, with increased activity levels at primary locations, such as those within the Sheffield area and close to motorway junctions. • Like the rest of South Yorkshire, Sheffield and Doncaster have a number of large distribution units available although the supply of modern, small to medium-sized units remains restricted. • Doncaster remains a favoured distribution location given its access to the motorway, rail and air networks. Take-up has been moderate for well-located, good second-hand units, which is slowly reducing availability. • The well-located estates in Rotherham have performed well throughout 2009, with the sub 50,000 sq ft units driving this market forward. Occupiers are drawn to the primary locations and, in particular, motorway junctions, with similar headline rental figures to the previous year being achieved.
• Several strategic development sites are available including: Newmarket at J30, M62, a 214-acre site adjacent to the motorway; Hawks Park, a 70-acre site in Garforth, Leeds; Trident Park, Wakefield and Logic Leeds. The availability of these sites could facilitate the anticipated demand in the big shed distribution market. • The last 12 months has seen a general lack of confidence from occupiers with regard to relocation/expansion initiatives, which has created both reduced take-up figures and significantly shorter lease commitments. • Take-up increased towards the latter part of the year due to perceived opportunities on the back of falling capital and rental values. Occupiers are tempted by the opportunity to secure the best deal now for the next five years. Smaller deals have dominated take-up in West Yorkshire. • Landlords are looking to retain existing tenants and are prepared to offer strongly incentivised deals on lease renewals. This is leading to a downward spiral in rental levels and increasing incentive packages. • Bank finance for speculative development has remained limited and is bringing the supply of grade A floor space to a halt. This has been further exacerbated by the implementation of empty rates, which further limits developers taking a risk on speculative development. • The potential shortage of stock across the West Yorkshire region, in all size sectors for good-quality accommodation, will lead to increased rental levels in the immediate future.
Lambert Smith Hampton Research | 26
Yorkshire & The Humber Key deals Location ProLogis Wakefield, Europort, Wakefield SixZeroSix, Euroway Trading Estate, Bradford Traxpack, Doncaster Sandvik, Beighton Link, Sheffield Former Empire Direct Warehouse, Canal Road, Bradford Brookfields, Dearne Valley, Rotherham Sherburn 92, Sherburn Distribution Park, Sherburn-in-Elmet Unit B, Capitol Park, Thorne, Doncaster Unit 3, Premier Park, Wakefield Barbados Way, Hellaby, Rotherham
Size (sq ft) 255,936 144,620 122,000 112,500 102,633 102,000 91,934 84,417 80,074 51,616
Rent (£psf) £4.50 £2.00 £44.71 (Freehold) £5.00 £35.56 (Freehold) £5.38 £3.20 £4.60 £4.15 £42.62 (Freehold)
Tenant VOW Advanced Supply Chain Car Shop Sandvik Medical British Wool Peglar Yorkshire Group Sala International Croda International AF Blakemore Rotherham Bonding
Source: LSH Research
Availability rates across the region %
Industrial market take-up 000 sq ft Second-hand
Average
New
10,000 Doncaster 8,000
Rotherham Sheffield
6,000
Hull 4,000
Bradford Leeds
2,000
Wakefield 0
2005
2006
2007
2008
2009
Source: LSH Research
5
0
15
10
Source: LSH Research
Prime and secondary headline rents £ per sq ft
Industrial market availability 000 sq ft Second-hand
Secondary
New
Prime
45,000 Doncaster
£4.25
£4.75
35,000
Rotherham
£4.25
£4.75
30,000
Sheffield
40,000
£4.50
£5.25
25,000 Hull
£4.00
£4.75
20,000 Bradford
£4.25
15,000 10,000
Leeds
5,000
Wakefield
0
2005
Source: LSH Research
2006
2007
2008
£5.50
£4.50
0
2009
£5.25
1
2
3
£4.25
£5.25
4
5
6
Source: LSH Research
www.lsh.co.uk
North West Executive summary • The North West recorded a significant level of take-up in 2009, with 13.2m sq ft of floor space acquired. This was broadly in line with the total recorded in the previous year but higher than the previous three years.
• Availability increased to 9.2% of total industrial floor space in the region, with 47% of stock on the market in buildings of 50,000 sq ft and above. Grade A availability accounted for 20% of total stock on the market, with more than half of new floor space in larger units.
Manchester
The North West recorded a significant level of take-up in 2009, with 13.2m sq ft of floor space acquired.
• Activity at the larger end of the market, above 150,000 sq ft, has been strong over 2009, with a number of significant transactions in the Manchester area. Two of the largest deals were the 210,000 sq ft lettings at Fusion, Trafford Park and Broadway 21, Oldham to Biffa Waste Services and Great Bear respectively. • In contrast there has only been a limited amount of good-quality, large units coming to the market and with no speculative schemes under construction the prospects for supply look limited. • There have been few deals between 20,000 to 100,000 sq ft, transactions were only achieved where competitive terms were offered. Now that Segro has taken over the Trafford Park Portfolio and reduced rents we are likely to see greater activity here.
• Prime rental values have fallen in both Manchester and Liverpool, whilst Runcorn and Crewe have seen values remain at end 2008 levels.
to split the 625,000 sq ft building in response to the reducing size of enquiries. • Several speculative schemes completed in 2009, notably St Modwen’s, Stonebridge Business Park, totalling 60,000 sq ft in four units close to the end of the M57 and Caddicks 80,000 sq ft development in ten units closely at Penhryn Court, Knowsley. Transactions at these schemes have been slow, with only one unit sold at Stonebridge and one let at Penhryn Court. • At the small end of the enquiry range there has been some success at Vesty Business Park, developed by Priority Sites, where all but one unit of 120,000 sq ft of this 160,000 sq ft estate has now been either let or sold.
Warrington/Runcorn
• The only speculative scheme to be completed over the past 12 months is a small unit scheme extending to a total of 54,600 sq ft by Seddon Developments at Axis Point in Rochdale.
• The two largest transactions in Runcorn and Warrington were completed in the second half of the year; the 367,000 sq ft letting at Manor Park, Runcorn, to Eddie Stobart and the 105,000 sq ft letting to Next at Winwick Quay, Warrington.
• This demonstrates the limited new space which is coming onto the market. Notably,
• At the smaller end of the market there continues to be a turnover of units, although
25% of the Axis Point scheme was sold within the first three months, which is an example of the resilience of the market for buildings below 20,000 sq ft.
Liverpool • Two of Merseyside’s four large, high-bay buildings have seen significant transactions over the second half of 2009 – Pioneer Point, Ellesmere Port and The Vault at Speke. Discount retailer, B&M Bargains, bought Rockpoint’s 620,000 sq ft building at Speke, Liverpool, whilst Interserve took 240,000 sq ft of Royal London’s Pioneer Point. • Royal London Asset Management has adopted a flexible approach at Pioneer Point in Ellesmere Port and has decided
Lambert Smith Hampton Research | 28
• Availability in Manchester and Liverpool fell by 15-20% over 2009 due to the strong levels of take-up.
there is a gap of enquiries of above 20,000 sq ft and below 150,000 sq ft. • Patrick Properties has completed a part speculative scheme on the back of a substantial pre-let of 130,000 sq ft to Advanced Medical. The speculative element of the scheme totals almost 50,000 sq ft in three units. • The most significant speculative building to be completed in Cheshire over the past 12 months was Manor Point, a 130,000 sq ft unit at Manor Park, Runcorn. Notably this building has two occupiers seeking terms and is likely to be let in early 2010. • Second-hand supply has increased in the area with a number of retailers giving up good-quality space.
North West Key deals Location The Vault, Speke, Liverpool Manor Park, Runcorn 360, Runcorn Pioneer Point, Ellesmere Port Fusion, Trafford Park, Traffford Broadway 21, Oldham Parkway, Trafford Park, Trafford Chillout, Abbotsfield, St Helens Duke Mill, Refuge Street, Shaw Calver Road, Winwick Quay, Warrington B2, Heywood Distribution Park, Heywood
Size (sq ft) 620,000 367,000 240,000 210,000 210,000 180,000 178,000 166,325 105,000 41,360
Rent (£psf) £27.00 (Freehold) £4.50 £4.25 £4.75 £4.25 £16.00 (Freehold) £17.50 (Freehold) n/a £3.85 £4.25
Tenant B&M Bargains Eddie Stobart Interserve Biffa Waste Services Great Bear (PZ Cousins) Regatta 151 Products JD Williams Group Next Bibby Distribution
Source: LSH Research
Availability rates across the region %
Industrial market take-up 000 sq ft Second-hand
New
Average
16,000 Manchester
14,000 12,000
Liverpool
10,000 8,000
Warrington/Runcorn
6,000 4,000
Crewe/Winsford
2,000 0
2005
2006
2007
2008
2009
Source: LSH Research
10
5
0
15
Source: LSH Research
Prime and secondary headline rents £ per sq ft
Industrial market availability 000 sq ft Second-hand
New
Secondary
Prime
60,000 Manchester
£4.50
£6.00
50,000
40,000
Liverpool
£3.50
£4.75
30,000
Warrington/Runcorn
20,000
£4.50
£5.25
10,000 Crewe/Winsford 0
2005
Source: LSH Research
2006
2007
2008
2009
£4.25 0
1
2
3
4
£5.25 5
6
7
Source: LSH Research
www.lsh.co.uk
North East Executive summary • Demand fell for buildings across all size ranges in the North East as the occupational market slowed. Take-up for the region as a whole was 3.1m sq ft with the majority of activity occurring in the first half of 2009. • Availability increased to 14.9m sq ft, 6.9% of total industrial floor space in the region.
• Prime rents fell by -7.5% on average with secondary rents also adjusting. In order to secure lettings on second-hand space, flexible terms were required.
• Speculative development came to a virtual standstill with developers only prepared to consider pre-lets/pre-sales and even then, when looking at design and build, the cost gap between existing and bespoke build is often too much to justify.
Newcastle/Gateshead
Darlington
• Demand for new grade space fell over 2009 as a result of the slower occupational market.
• Take-up in Darlington remained constant despite the weak market. Larger lettings boosted the overall take-up figures. At Faverdale East, TMS signed for 100,000 sq ft of industrial accommodation. Landlord Easter Developments agreed a 10-year lease at £400,000 per annum which equates to £4.00 per sq ft.
Of the balance of space, 75% is in second-hand accommodation, with just over 3.6m sq ft in grade A accommodation on the market.
• Demand at UK Land’s Queens Court Scheme, Team Valley, Gateshead, has
Speculative developments came to a virtual standstill.
proved resillient, being fully let/sold over the past 12 months. The scheme consisted of industrial accommodation from 1,467 to 29,561 sq ft. • Caddick Developments was one of the few developers to progress a speculative scheme over 2009. The company was appointed as the preferred developer on the 180,000 sq ft, second phase of Newburn Riverside Business Park, the 227-acre scheme is one of the largest land reclamation schemes in the UK.
of the stock available, whether it is new build or good-quality second-hand.
Middlesbrough/Stockton on Tees
• The main schemes in the Sunderland/ Washington area are Radial 64 and Turbine Business Park.
• The market in Middlesbrough and Stockton on Tees saw a reduction of activity over 2009, although the previous year’s take-up figure was buoyed by several larger transactions.
• At Highbridge Properties’ Radial 64, Washington, 350,000 sq ft has been
• Availability in the area is dominated by second-hand stock, and this has increased
Sunderland/Washington
pre-let to BAE Systems on a 25-year lease. Turbine Business Park, Sunderland, is a 715,000 sq ft of office, industrial, hotel, car showroom and retail scheme. Barmston Developments has, over the past 12 months, completed the infrastructure so it can respond quickly to design and build requirements. • Second-hand accommodation is being let at close to the quoting rent but often with the benefit of generous rent-free periods, as a result of landlords taking the opportunity to mitigate the rates liability. • Areas such as Sunderland and Washington with historically high levels of vacant accommodation saw tenants negotiating from a position of strength.
Lambert Smith Hampton Research | 30
• The other major schemes in Darlington are Link 66 and Lingfield Park contributing to a continuing improvement to the quality
over the past 12 months. The supply of good-quality accommodation has remained relatively stable. • Landlords in a position to refurbish existing stock are likely to be in an advantageous position if tenant demand improves, benefiting from the delays which are inherent to new build schemes.
North East Key deals Location Radial 64, Washington 2 Drum Park, Chester le Street 13/14 Tynepoint Industrial Estate, Jarrow 4 Faverdale East Business Park, Darlington District 10, Spire Road, Washington 4 Faverdale East Business Park, Darlington
Size (sq ft) 350,000 271,000 101,210 100,000 59,567 58,541
Rent (£psf) n/a £4.25 £2.96 £4.00 £2.94 n/a
Tenant BAE Systems Co-operative Group NEMS TMS Washington Display Confidential
Source: LSH Research
Availability rates across the region %
Industrial market take-up 000 sq ft Second-hand
Average
New
4,000 Newcastle/ Gateshead
3,500 3,000
Sunderland/ Washington
2,500 2,000
Darlington
1,500 1,000
Middlesbrough/ Stockton on Tees
500 0
2005
2006
2007
2008
Source: LSH Research
10
5
0
2009
15
Source: LSH Research
Prime and secondary headline rents £ per sq ft
Industrial market availability 000 sq ft Second-hand
Secondary
New
Prime
17,500 Newcastle/ Gateshead
15,000
£4.00
£5.50
12,500 Sunderland/ Washington
10,000
£3.75
£4.75
7,500 Darlington
£3.25
£4.00
5,000 Middlesbrough/ Stockton on Tees
2,500 0
2005
Source: LSH Research
2006
2007
2008
£3.50 0
2009
1
2
3
£4.25 4
5
6
Source: LSH Research
www.lsh.co.uk
Wales Executive summary • Take-up of 3.9m sq ft was recorded for Wales in 2009, 9.0% higher than the previous year’s figure but significantly below peak market activity of 5.8m sq ft in 2007. Activity slowed in the second half of the year, as the recession continued to impact on manufacturing in the area.
• The release of second-hand space onto the market pushed availability up by more than 20% to 21.6m sq ft, equating to 9.0% of total industrial floor space. Grade A accommodation accounts for 11% of total floor space on the market. • Larger buildings (>50,000 sq ft) account for 50% of total floor
Cardiff
Take-up of 3.9m sq ft was recorded for Wales in 2009, 9.0% higher than the previous year’s figure.
• The Cardiff industrial market, as with the region as a whole, has experienced an increase in supply which has been driven by lower than average take-up levels and continued tenant rationalisation and corporate failure. The net result has been a decrease in headline rents/capital values and an increase in tenant incentives and landlord flexibility.
• Prime rental values fell by -2.3% on average, with Cardiff and Newport seeing falls of -8.3% and -5.6% respectively. accommodation available on the estate, representing 90% of the total available stock in the area. • Demand has again been focused around good-quality, detached, well-located buildings including the letting of 55,000 sq ft at Imperial Park to WH Smith and the sale of 182,507 sq ft at Unit 1, Severn Crossing, to Maybey Group, the largest freehold deal in five years.
• Take-up has principally been driven by demand for good-quality, detached, welllocated buildings along the M4 Corridor. Deals illustrating this include: the sale of 64,000 sq ft at Forest Farm to MTD; the letting of 56,000 sq ft at Parc Nantgarw to Veolia and the sale of a 32,000 sq ft unit at Parc Nantgarw to Wales & West Utilities.
• St Modwen’s regeneration of the former Llanwern Steel Works to create Celtic Business Park is one of the most exciting projects in the region. The scheme is anticipated to provide 1.5m sq ft of employment space.
• While the supply of secondary stock has increased, there continues to be a lack of good-quality, new or refurbished stock.
• The largest letting in 2009 within the South West Wales market was at Kenfig near Port Talbot. Kenmore secured a letting to Bunzl for 233,177 sq ft at the South Wales Distribution Centre. This deal was followed by a 206,000 letting to Falcon Steel at Alcoa’s Westfield Industrial Park, Wauanlwydd, Swansea West.
• With the exception of recently completed developments in Wentloog to the south east of the city, the majority of available stock is in the form of second-hand units or units that have been created through the sub-division of much larger buildings. • Significant voids in the city include the 220,000 sq ft Imperial Tobacco and 65,000 sq ft SA Brain & Co sites. The recent announcement of the closure of Bosch’s 410,000 sq ft production facility in Miskin follows a series of closure that have left the manufacturing industry reeling.
Newport • The Newport area has suffered similar experiences to Cardiff, with corporate closures resulting in the release of secondhand stock onto the market. Two of the most significant closures have been Masashi Auto Parts at Blackwood and Novelis aluminum sheet mill at Rogerstone. • Supply has increased significantly, most noticeably in Newhouse Farm, where there will shortly be a total of approximately 1.35 to 1.4m sq ft of warehousing
Lambert Smith Hampton Research | 32
space on the market, with the majority of stock concentrated towards second-hand space. Less than 1m sq ft of space in larger units is in grade A stock.
Swansea
• It is anticipated that we will see a number of new, large-scale transactions being concluded in the early part of 2010. However, these will be counteracted by other new large-scale warehouse and production facilities entering the market, due to continued factory closures. • The end of 2009 saw the commencement of the marketing of the 300,000 sq ft Borg Warner site at Kenfig, Port Talbot, and 265,000 sq ft at the Former Draka Wire site at Llanelli. Distribution locations such as Fabian Park off J42 M4, close to the 850,000 sq ft Amazon facility, continue to attract interest • In the last four months of 2009, the takeup of small industrial property below 10,000 sq ft increased. Prime trade centres and modern industrial units held their rental levels, but secondary stock continues to decline. It is hoped that 2010 will see the return of the trade centre requirements.
Wales Key deals Location South West Wales Distribution Centre, Kenfig, Port Talbot Westfield Industrial Park, Wauanlwydd, Swansea West Unit 1, Severn Crossing, Newport Former Takiron Building, Caerphilly Aquarius 3, Deeside Industrial Park, Sealand Units A-D, Reevesland Industrial Estate, Newport Forest Farm, Cardiff Parc Nantgarw, Cardiff Imperial Park, Newport Parc Nantgarw, Cardiff
Size (sq ft) 233,177 206,000 182,807 99,000 90,500 90,000 64,000 56,000 55,000 32,000
Rent (£psf) n/a n/a (Freehold) n/a n/a £2.97 (Freehold) n/a n/a (Freehold)
Tenant Bunzl Falcon Steel Maybey Group Nu-Aire Closed Loop Recycling Owens Road Services MTD Veolia WH Smith Wales & West Utilities
Source: LSH Research
Availability rates across the region %
Industrial market take-up 000 sq ft Second-hand
Average
New
8,000 Cardiff 6,000
Newport
4,000
2,000 Swansea 0
2005
2006
2007
2008
Source: LSH Research
5
0
2009
15
10
20
Source: LSH Research
Prime and secondary headline rents £ per sq ft
Industrial market availability 000 sq ft Second-hand
Secondary
New
Prime
20,000 Cardiff
£4.00
£5.50
15,000
£3.00
Newport
10,000
£4.25
5,000 Swansea
0
2005
Source: LSH Research
2006
2007
2008
2009
£3.75
0
1
2
3
£4.90
4
5
6
Source: LSH Research
www.lsh.co.uk
Scotland Executive summary • The occupier market in Scotland remained fairly active in 2009 with take-up around 4.9m sq ft, 15% below the five-year average. The majority of take-up has been in the 50,000 to 100,000 sq ft size band, which has remained the most active area of the market.
Development activity remains limited as developers exercise caution and avoid speculative development.
• There have been fewer big shed deals recorded in 2008 and 2009 which has led to below average take-up in both years. The only major pre-let during the year was the 500,000 sq ft letting to the Co-operative Group at ProLogis Park in Newhouse.
• Enquiry levels dropped during 2009 with the majority of activity coming from local businesses seeking small to medium-sized units on flexible lease terms.
Glasgow/West of Scotland
Edinburgh, Lothian and Fife
• The current supply of good-quality, small industrial accommodation is reducing with no development activity planned in the West of Scotland. With concerns over void periods, lack of good covenants and more importantly funding any development activity, will be focused on pre-lets.
• With demand currently lagging the supply of newly built units, landlords have begun accepting reduced rents whilst adopting a more flexible approach to lease duration and structure, in order to secure lettings. • Prime headline rents have now fallen to £6.25 to £6.50 per sq ft on new or modern
• Rents on better quality stock remain in line with previously established levels. However,
small/medium-sized units in Edinburgh from £7.00 per sq ft in 2008.
many landlords are adopting a flexible approach, offering significant incentive packages in order to secure lettings, especially on second-hand space. • Prime rents for industrial property in the West of Scotland have returned to 2007 levels at £6.00 per sq ft, a decrease of -4.0% on the 2008 figure. Trade counter rental levels are around the £8.00 per sq ft mark. Rents look set to increase over the next few years, given the lack of supply. • Lanarkshire continues to be popular with occupiers, particularly Eurocentral, which has been the focus of many deals. 2010 has started well, with Wincanton committing to a 165,000 sq ft unit at Eurocentral. • Transactions during 2009 include; Finsbury Food Group, taking around 71,700 sq ft, and Mentholatum acquiring 64,640 sq ft at Central Point, Eurocentral. • Other deals include the 115,000 sq ft letting to Malcolm Logistics at Westway in Renfrew, Glasgow, as well as AG Barr taking 86,500 sq ft at Cumbernauld to the north east of Glasgow. • In terms of new industrial development, Parkway Point at Glasgow Business Park, developed by Silverbank, is now complete and provides around 45,000 sq ft of trade counter space. In addition, a 25,000 sq ft small unit scheme is available within Bellshill.
Lambert Smith Hampton Research | 34
• Availability increased to 29.2m sq ft, 13.3% of total industrial floor space in Scotland.
• Total industrial take-up in Edinburgh, Lothian and Fife was 649,102 sq ft in 2009 contrasting with 2.1m sq ft in 2008, representing the lowest annual take-up in the area for the last ten years and below the 10-year average for the area of 1.9m sq ft. • The number of transactions fell from 289 in 2008 to 207 in 2009, with the average transaction size also reducing to 3,135 sq ft against 7,340 sq ft during 2008. • Availability increased by 546,996 sq ft to stand at 7.5m sq ft at the end of 2009. • The big shed market remains oversupplied, particularly in West Lothian, where goodquality distribution units, many of which have been on the market for considerable periods, remain vacant with limited interest. • The demand for second-hand space remains weak, especially for larger production units where rental and capital values have fallen considerably. It is likely that the freehold values in this sector have ‘bottomed’ as capital values are now almost equating to serviced site values. • Development activity remains limited as developers exercise caution and avoid speculative development of any consequence in the current climate.
Scotland Key deals Location ProLogis Park, Newhouse Block K, Porterfield Road, Renfrew Cumbernauld, Glasgow Artemis, Brittan Way, Eurocentral, Bellshill Central Point, Eurocentral, Bellshill Units 1, 3-5, Lyneburn Industrial Estate, Dunfermline The Red Shed, West Gourdie Industrial Estate, Dundee Units 1 A-E, Excelsior Park, Wishaw Unit 1, Rankine Square, Deans Industrial Estate, Livingston
Size (sq ft) 504,000 115,000 86,500 71,700 64,640 40,375 35,000 25,000 16,800
Rent (£psf) £4.50 n/a n/a £5.25 £5.50 n/a n/a £5.50 n/a
Tenant Co-operative Group Malcolm Logistics AG Barr Finsbury Food Group Mentholatuem FMC Ltd Taylor Foods F&P Wholesale Iron Mountain
Source: LSH Research
Availability rates across the region %
Industrial market take-up 000 sq ft
Average
Second-hand
7,000 Glasgow/ West of Scotland
6,000 5,000 4,000
Edinburgh/ Lothian 3,000 2,000 Fife
1,000 0
2005
2006
2007
2008
2009
Source: LSH Research
5
0
15
10
20
25
Source: LSH Research
Industrial market availability 000 sq ft
Prime and secondary headline rents £ per sq ft
Second-hand
Secondary
New
Prime
35,000 Glasgow/ West of Scotland
30,000
£4.75
£6.00
25,000 20,000 Edinburgh/ Lothian
£5.50
£6.50
15,000 10,000 Fife
5,000 0
2005
Source: LSH Research
2006
2007
2008
2009
£5.00
0
1
2
3
4
5
£6.25
6
7
Source: LSH Research
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Details of other Lambert Smith Hampton research material can be viewed on our website at http://www.lsh.co.uk Due to space constraints within the report, it has not been possible to include both imperial and metric measurements. © Lambert Smith Hampton March 2010. Regulated by RICS This document is for general informative purposes only. The information in it is believed to be correct, but no express or implied representation or warranty is made by Lambert Smith Hampton as to its accuracy or completeness, and the opinions in it constitute our judgement as of this date but are subject to change. Reliance should not be placed upon the information, forecasts and opinions set out herein for the purpose of any particular transaction, and no responsibility or liability, whether in negligence or otherwise, is accepted by Lambert Smith Hampton or by any of its directors, officers, employees, agents or representatives for any direct, indirect or consequential loss or damage which may result from any such reliance or other use thereof. All rights reserved. No part of this publication may be transmitted or reproduced in any material form by any means, electronic, recording, mechanical, photocopying or otherwise, or stored in any information storage or retrieval system of any nature, without the prior written permission of the copyright holder, except in accordance with the provisions of the Copyright Designs and Patents Act 1988. Warning: the doing of an unauthorised act in relation to a copyright work may result in both a civil claim for damages and criminal prosecution.
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