West Midlands sees confidence return with spec development

West Midlands sees confidence return with spec development


The confidence that has eluded the West Midlands commercial property market since the start of the economic downturn is beginning to return to the industrial sector.

Alex Carr, Director of Industrial & Logistics in our Birmingham team, said the much anticipated return of speculative development was just one of the indicators that the market was beginning to improve.
In LSH’s West Midlands Industrial & Logistics H1 Market Review, Alex highlighted the announcement by Coleshill-based investment and development company IM Properties as a major breakthrough for the region.

He said: “In a major sign of confidence in the economic recovery and the region, the company became the region’s first developer in five years to speculatively build large scale industrial warehousing.

“The industry-leading move will see the company construct two logistics units totaling 334,500 sq ft at its Birch Coppice Business Park off the M42 in North Warwickshire - already home to occupants including Ocado, UPS, Volkswagen Group, Euro Car Parts and Roadways Container Logistics.”

Construction work is set to begin this month (July) and complete in January 2014. There has been no speculative construction of distribution units over 100,000 sq ft since 2008.

“This was the major sign of a return of confidence the industrial and logistics market had been waiting for but there are many other indications that the situation is improving,” he added.

To encourage further speculative schemes, the Government will also exempt all newly built commercial property completed between 1 October 2013 and 30 September 2016 from empty property rates for the first 18 months. This is a move that has been widely welcomed by developers.

Developers face increased pressure to consider speculative development

There has been a positive level of take-up from third party logistics operators (3PLs), automotive and aerospace sectors, parcel operators and retailers.
Alex added: “With continued occupier demand for grade A industrial space, developers are facing increased pressure to consider speculative development as remaining space rapidly declines. Meanwhile, landlords of key existing buildings in the region are holding out for strong headline rents and longer leases. Incentives have also hardened with some landlords now unwilling to offer in excess of six months’ rent free on a five-year lease.
“There is a notable difference between the north and south of the West Midlands region with higher rents, take-up, and investment to the south, along with lower yields and availability rates. Close proximity to the golden triangle motorway network and key automotive hubs in Birmingham, Wolverhampton and Coventry is of significant importance to occupiers. It is here that we expect to see the most rental growth and the majority of any speculative development in coming months.”
LSH has completed two of the largest occupational transactions within the first half of the year, including: the 336,488 sq ft acquisition of part of the Tamworth 594 facility on behalf of Hermes Parcelnet and the 302,693 sq ft acquisition of the Duke in Burton on Trent for Clipper Logistics. Other transactions in the region include the 367,500 DC5 unit at ProLogis Park, Minworth, pre-let to The Pallet Network; the 148,915 sq ft unit at Altitude building, Birmingham, sold to Minor Weir Willis; and the £25million purchase of DC2 at ProLogis Park Ryton, Coventry, by Network Rail.    
Due to the lack of development activity over the past five years an acute shortage of grade A supply still exists across all sectors – big shed, mid-box and SME. Across the region there are now only five new buildings left on the market in excess of 50,000 sq ft, providing just 1,026,510 sq ft of space. However, two of these (Measham 142 and Kingswood Lakeside) are now under offer so the true availability is much lower.

Occupiers forced to consider alternative options

The multi-let market continues to see a regular amount of churn and, as a result, vacancy rates have reduced substantially on many of the region’s larger multi-let estates. Looking ahead to the next six months of the year, occupiers will be forced to consider grade B stock, refurbishments or design and build solutions.
“If we look at how has the investment market performed in the first half of 2013 we can see that,
while we have seen a resurgence in demand for both distribution and multi-let industrial investments, a number of deals are yet to complete. Q1 was particularly slow with only IM Properties’ acquisition of The Hub in Birmingham, and LIM’s purchase of First Point in Burton, grabbing the headlines.
“That said, we continue to see significant demand in the market for good quality product and, while few deals have completed in Q2, a number of notable transactions are under offer including: Oxford Street IE, Bilston (114,912 sq ft); Smyths Toys, Newcastle-under-Lyme (414,876 sq ft); Big Blue, Birmingham (210,0000 sq ft); Cofton Centre, Longbridge (47,559 sq ft); The Duke, Burton-upon-Trent (303,047 sq ft).
“Looking ahead to the rest of 2013, I predict that there will be casualties in the large proportion of available space which consists of poorer quality units, with many likely to be deemed obsolete by occupiers. There are also the implications of the Energy Act to consider when acquiring buildings with an F & G rating. Landlords will continue to hold out for better terms as grade A supply declines further. Meanwhile, retailers will increasingly seek to secure dedicated e-commerce facilities in the region.

Further speculative development on the horizon?

“The really good news is that we anticipate further speculative development, most likely in the range of 100,000 – 200,000 sq ft. Key development sites include First Industrial’s Prime 10 in Wolverhampton (detailed consent for 412,605 sq ft), St Francis and Opus’s 22 acre Blueprint site with potential rail freight link at Wednesbury, IM Properties’ Hub site in Witton, and F&C Reit’s Nucleus site in Lichfield. Overall, there is a good level of unsatisfied demand and we expect this to be reflected in increased industrial market activity in the region as a whole,” added Alex. 

For further information relating to this news article contact 

Contact us now

Alex Carr
Director - Capital Markets - Industrial & Logistics

020 7198 2233

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