Industrial Market Review

West Midlands industrial & logistics market review

Following record annual take-up of 14.3m sq ft last year, the first half of 2014 has seen robust activity - albeit constrained to specific locations due to the acute shortage of grade A accommodation.

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In this issue:

The time to build is now

  • With continued occupier demand for grade A industrial space, developers have been under increasing pressure to consider speculative development as remaining space rapidly declines.
  • We are now seeing pockets of speculative development underway across the region. 
  • Although the upturn in speculative development is welcome, it will not be sufficient to satisfy the latent demand in the market.
  • The automotive sector remains highly active in the Midlands and represents a number of live requirements.
  • The manufacturing sector’s performance has also remained strong, with the West Midlands region growing far faster than the UK average. The likes of Aston Manor Brewery and Premier Group are examples of active occupiers in the market at present.

View significant occupational transactions H1 2014.

Development land

  • UK Mail acquired approximately 20 acres of development land from Prologis at Ryton (Coventry) in February for a new 231,050 sq ft sorting facility including a 36,220 sq ft head office building. Prologis will build this on their behalf under a development agreement.
  • We have seen a sharp increase in land values on the back of improved investor/developer demand and a distinct shortage of opportunities to acquire employment land free from a developer tie.
  • Prime industrial land values in Birmingham have now risen to in excess of £500,000 per acre - a significant increase from where they were in 2013.
  • Three key employment sites in Birmingham have been safeguarded for the proposed High Speed 2 line. Heartlands Park Washwood Heath comprising 56 acres, the adjacent 22 acre LDV site owned by AXA, and 20 acres owned by Langtree/HCA are all potentially required for the rolling stock depot. These sites total approximately 98 acres of prime employment land in Birmingham.
  • There is a shortage of employment land opportunities in Birmingham – as evidenced with UK Mail’s relocation from Washwood Heath, Birmingham to Prologis Park, Ryton, in Coventry.

A welcome return to speculative development

  • There is just 806,433 sq ft of grade A accommodation either on the market or currently under speculative development.
  • Remaining grade A supply is in prime locations along the M42/M6 - where we have seen a return of speculative development, and also in more challenging secondary locations such as Newcastle-under-Lyme.
  • At the smaller end of the market, London & Cambridge has completed the speculative development of Progress Point, Kingswinford comprising 21,000 sq ft of industrial space within three blocks of units ranging from 1,500 to 9,000 sq ft.
  • PXP West Midlands has also speculatively built Sapphire Court, Bromsgrove, comprising 35,500 sq ft of warehouse space within 13 units ranging from 1,402 sq ft to 5,378 sq ft.
  • It is also anticipated that Clowes Developments will embark upon a speculative development at Bentley Bridge Wolverhampton in the second half of the year on the back of a recent pre-let. This will provide 38,558 sq ft of warehouse and industrial space within a single block ranging from 5,718 to 8,340 sq ft.
  • Canmoor are due to commence construction of Silver Bullet, a 142,758 sq ft speculative development at Hams Hall, Coleshill during Q3 2014.

Speculative development vs design and build

  • There has been increased interest from developers - particularly those supported by institutional money willing to back possible speculative development in the region of 100,000 – 200,000 sq ft size band.
  • We anticipate further announcements of circa 100,000 sq ft + speculative development later in the year, although these will be insufficient to satisfy demand.
  • The mid-box sector (50,000 sq ft – 100,000 sq ft) still appears to be overlooked for speculative development despite requirements in the market.
  • There are apparent rewards for those who embark upon speculative development in prime locations, as evidenced by IM Properties pre-letting Unit 2 at Birch Coppice prior to practical completion.
  • Despite the strong arguments for speculative development, we still expect the majority of developers to focus on design and build – a ‘no-risk’ solution to occupier requirements.
  • Those developers with ‘oven-ready’ sites will attract occupiers due to the lack of opportunities in the market.
  • There is currently undeveloped land available throughout the region that would be suitable for industrial development; however it lacks planning consent and the allocation process can be somewhat lengthy and drawn out.

How has the investment market performed in 2014?

The industrial market has continued where it left off in 2013; with a significant weight of money chasing investment product that remains relatively scarce. We have seen yield compression across the board with supply/demand dynamics in the West Midlands’ occupational market in particular giving investors confidence in the likely performance of this sector moving forward.

As well as the transactions listed, we are aware of several deals within the logistics and multi-let sub-sectors that are currently under offer well in excess of quoting term, due to the strength of demand from investors.

Within the distribution market we are seeing considerable interest from a number of overseas buyers (particularly South African) who are providing stiff competition to some of the UK’s more traditional investors. Deals of note include:

• Acton Gate, Stafford (L&G £33m 6.2%)
• Tamworth 594, Tamworth (Blackstone RE £34.39m 7.9%)
• The Steelpark, Wolverhampton (Schroder £34.1m 9.0%)
• Grovelands IE, Coventry (Pramerica REI £11.15m 8.12%)

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Alex Carr

020 7198 2233

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Alex Carr
Director - Capital Markets - Industrial & Logistics

020 7198 2233

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