Dwindling stock an issue as occupier activity continues

Sustained take-up of property in the Midlands logistics sector during the first half of the year has put further pressure on the dwindling amount of available stock, according to CBRE’s latest UK Logistics Marketview.

Take-up of new and secondhand property (over 100,000 sq ft) between January and June totalled 2.16 million sq ft, with just under half (920,000 sq ft) being new space.

In the West Midlands, take up of both new and secondhand units totalled just under 1 million sq ft, while the East Midlands slightly edged ahead with 1.26 million sq ft, marking a return to a more typical pattern of occupier activity across the Midlands, with the East being the more dominant half of the region.

The West Midlands saw the highest take-up of new logistics units at 680,000 sq ft, compared to 240,000 sq ft in the East Midlands.  However, take-up of secondhand space in the East Midlands outstripped the West Midlands by 980,000 sq ft, with 1.2m sq ft and 220,00 sq ft respectively.

Richard Meering, senior director in the industrial agency team at CBRE in Birmingham

Richard Meering, senior director in the industrial agency team at CBRE in Birmingham, said: “After a more subdued end to 2011, there was a spike of occupier activity during the first six months of the year, which is a good sign that the logistics market remains strong, with continued demand in the recognised core distribution locations. However, the supply of existing quality new stock is rapidly running out and this will cause problems for some occupiers.

“While supply levels have remained relatively stable over the past 12 months, new space continues to decline, falling 22 per cent since the start of the year. In contrast, the amount of secondhand stock has continued to increase, rising by 30 per cent to 5.6 million sq ft, resulting in the market now being dominated by secondhand space. Whilst functional and perhaps offering fit out, a lot of these buildings will not necessarily offer the preferred specification occupiers are looking for.”

According to the CBRE report, of the transactions that were completed during the first half of the year, the majority were sub-200,000 sq ft. Significantly, there have been no deals over

500,000 sq ft in the Midlands for more than 12 months, since the lettings to Amazon at G. Park, Rugeley, the Co-Operative Group at EMDC, and Ocado at Birch Coppice were all agreed. And with a number of buildings currently under offer also in the sub-200,000 sq ft size bracket, the trend is expected to continue during the second half the year.

Meering added: “What we are seeing in terms of the size of deals is ultimately a reflection of the current availability, with buildings between 100 – 200,000 sq ft accounting for almost 3 million sq ft of the total supply.”

CBRE recently completed a 141,000 sq ft letting at P141 Tetron Point in Swadlincote to Euro Car Parts, the UK’s leading distributor of parts for cars and light commercial vehicles. The company has taken the unit on a ten year lease at a headline rent of £4.75 per sq ft.

To further illustrate the point, global logistics company Syncreon has recently taken 213,000 sq ft at 5110 Magna Park in Lutterworth on a 10 year lease at a rent of £5.50 per sq ft. CBRE advised the landlord, Blackstone, having originally acquired the building on its behalf.

Both deals were completed within four weeks of terms being agreed.

Despite the challenging economic climate, companies are having to react to their markets,” said Mr Meering.

“The Midlands automotive industry, for example, is going from strength-to-strength, with the likes of BMW, which announced it will be investing £250 million in its three Mini factories in the UK including the plant at Hams Hall, and Jaguar Land Rover committing millions of pounds of investment in their regional operations.

“In a further boost for the manufacturing industry, Hitachi has announced that it will be building a new 450,000 sq ft train manufacturing facility at Amazon Park in Newton Aycliffe.

“All of this is good news for the logistics sector, but we need the available stock.”

With limited availability of new space across the Midlands, Mr Meering said attention is turning to where new stock can be delivered.

“There are now significant gaps in available quality units across the region, particularly from Birmingham down to Rugby within the ‘Golden Triangle’, and occupiers are having to increasingly focus on ‘oven ready’ development sites where infrastructure is in place and buildings can be procured within 12 to 15 months. However, the number of sites that can offer this are very limited.

“We are starting to see the first quality development sites coming to the market, which are generating strong interest. Best bids have been secured on notable development sites at Milton Ham, Northampton, Ryton in Coventry and Rugby Gateway, all of which offer excellent immediate development potential.

“For developers and landlords, the pendulum has definitely swung in their favour as they are now able to secure strong returns.”