Abundantly clear…

COMING INTO the big shed warehouse market in the Northwest and you’d be forgiven for thinking that there is a plethora of space to be had for occupiers. All indicators point to a rise in the amount of floor space available with a corresponding jump in the vacancy rates.

In the year to June 2024 Savills reported an 83% increase in the supply of warehouse space in units over 100,000 ft2 with vacancy rates pushing from 6.17% to 7.01% in the same period.

And this increase seems to be continuing, in Avison Young’s Q3 research, senior analyst Lewis Rapley put big box Grade A supply at 5.8 million ft2 in 28 units – a 13% increase ahead of the previous quarter.

Property analyst CoStar is currently tracking some 17 million ft2 of space in 60 units as either ready to occupy right now or as under refurbishment or under construction.

CoStar’s senior director of market analytics Grant Lonsdale notes: “The number of units stands at two and a half times its early 2022 level, and largely within warehouses available direct from landlords. Less than 5% of the total availability is tenant space available via sub-let or assignment – grey space.”

While this does seem a lot of space there are caveats. Is it the right size? Is it the right Grade? Is it in the right place? Answer these questions and suddenly the number of suitable units may not be as generous as first perceived.

According to CoStar 60% of the warehouse units it is tracking are in the 100-200,000 ft2 size bracket. There a further 10 units of 200-300,000 ft2, eight units between 300-400,000 ft2, three between 400 and 400,000 ft2 and just two larger than 500,000 ft2.

There has been a move by occupiers towards larger buildings. Avison Young’s James Goode says: “The first half of the year, in terms of take up, was rather quiet but the second half has seen a good run of deals with a focus on larger buildings of 250,000 ft2 and above.”

Figures from CoStar show that the in the last 12 months the average size for deals done in units 100,000 ft2 and above, in the Northwest, is 265,000 ft2.

In July, Greene King, took the 294,458 ft2 former Tesco unit known as Stakehill 295 on the Stakehill Industrial Estate in Middleton Greater Manchester. The unit, owned by Tritax Big Box, was taken on a 15 year lease in partnership with GXO. The site will consolidate the pub company’s logistics network in the area with Greene King investing some £23 million over a 12 month period on re-developing and refurbishing with the depot opening for drink deliveries from May 2025 and food from early-2026.

A few weeks after the Green King deal, food manufacturer and distributor Inspired Global Cuisine took investor ERGO’s 369,251 ft2 Oldham 369 warehouse in Chadderton, Oldham, as its brand new manufacturing and distribution centre. Letting agents were CBRE, DTRE, and Cushman & Wakefield. Then, just a couple of weeks ago retailer B&M snapped up investor Cain International’s 674,000 ft2 Link 674 warehouse at Ellesmere Port in the Northwest – in one of the biggest speculative warehouse deals of the year. The cross dock facility, was developed by Firethorn Trust as net zero carbon in construction and has a BREEAM Excellent and EPC A + rating. Joint letting agents for the building were B8 Real Estate, Moriarty & Co and CBRE.

Savills director and head of the Industrial Agency department in the North West, Jonathan Atherton says: “We have certainly seen more activity in at the larger end of the market than in the 100-200,000 ft2 shed size bracket which would have typically made up around 80% [of transactions].

“I think some of these requirements [at any other time] would have been build-to-suit. Occupiers need clarity on delivery and with the movement in construction costs and uncertainty around planning, occupiers have decided to take built product rather than continue with build-to-suit.”

“That being said,” notes Tritax Big Box developments head of Manchester office David Travis: “There is a trend for occupiers to go larger and larger and we are conscious of that point.”

This larger building focus reflects the national picture with Savills reporting that the requirements for units over 500,000 ft2 remain 250% higher than they were in Q1 2020.

Looking at the Northwest B8 Real Estate director Steve Johnson says: “Right now we have five live requirements for units over 500,000 ft2.”

Johnson continues: “There are currently two units of that size available or under construction and just three sites which have detailed or reserved matters planning and could start immediately.”

Atherton says: “There is a problem with supply. Already Tungsten and Tristan Capital’s 500,000 ft2 Arc Royal scheme has garnered interest following completion with a couple of occupiers looking at the moment.

“The only other 500,000 ft2 plus unit coming through is XDoc 549, which is due to complete in February /March 2025.”

Tungsten and Tristan Capital’s Arc 500 is a 497,201 ft2 cross docked speculative industrial / logistics facility with two 50m yards and 360 circulation, on the former Ark Royal site in Birkenhead, Liverpool, while XDoc 549, in Widnes, is a 549,400 ft2 cross dock warehouse on a site with 38% coverage being brought forward by real estate investment management company Mirastar. Both units sit in the Liverpool Freeport where occupiers can, subject to status, secure tax and customs benefits up to £15 million. Joint letting agents for XDoc 549 are Savills and Cushman & Wakefield. The joint agents for Arc 500 are Colliers and CPP.

With the five live 500,000 ft2 requirements, and the possibility of more to emerge in the New Year, clearly there is going to be an issue if more 500,000 ft2 units cannot be brought on line quickly.

Atherton says: “The planning position is constraining supply of these big sheds. The call in by the Secretary of State on key development sites a couple of years ago was detrimental to the balance of supply in the region [see box]. This has only been acerbated by other factors such as construction costs, yield movement in the investment market and finance costs all leading to a dearth of units coming to market now.” 

This has led to a drop in speculative development starts across the region typically 40%.

Travis says: “There are not many consented sites that can accommodate larger format buildings, while we could get a 500,000 ft2 shed at Wigan [Tritax’s 1.44 million ft2 scheme that secured approval following a call in by the Secretary of State in 2021] our development at Intermodal Logistics Park North is still some three to four years away due to the Development Consent Order process following its acquisition earlier this year.”

The investor developer acquired the 221-acre site at Parkside East in December last year. It is located within Liverpool City Region’s Freeport zone off Junction 22 of the M6 motorway, 2.1 million ft2 scheme would also feature a rail freight interchange. The Parkside East site is allocated in St Helens Local Plan for employment uses and a freight interchange.

Parkside Regeneration, the joint venture between Langtree and St Helens Council, is delivering the redevelopment of the other half of the former Parkside colliery. Plans for 1m ft2 of industrial space and a £38m link road were approved late 2022 after a call-in by the Secretary of State 18 months earlier.

While there are not many 500,000 ft2 sites or buildings available that is not to say that developers are not progressing with larger format buildings right now. To name but a few, Logicor has started construction on its BREEAM Outstanding EPC A+ rated Bolt330 scheme in Little Hulton. It will provide 311,500 ft2 of warehousing, 13,000 ft2 of three storey offices as well as a separate 2,000 ft2 hub office with a green roof to boost biodiversity. Letting agents are knight Frank, CPP and B8 Real Estate.

Indurent is also progressing a large format building with its speculative 420,872 ft2 unit at Omega West in Warrington. It is set to deliver high-quality workspace with BREEAM ‘Excellent’ and EPC A+ accreditations, featuring a sustainable 2MVA power supply and solar PV cells. 

In addition, Trebor Developments and Hillwood are pushing ahead with their 335,000 ft2 CREWE335 unit on Weston Road, having recently secured contractor Glencar for its construction. The BREEAM Excellent facility is expected to reach practical completion in April 2025. Joint letting agents are Knight Frank and Avison Young.

Johnson points out: “There is lots of demand for 350,000 ft2 + units and very little pipeline coming through. There is about 2 million ft2 of speculative buildings and that includes those under offer with a further 2.8 million ft2 under construction in five buildings – should one or two of these go before the end of the year then my point is that very quickly there will be a real under supply issues next year.”

Its not that there is such a dearth of large format properties, its that a lot of space is not brand new Grade A. According to CoStar’s figure only half the 17 million ft2 it has identified is Grade A with 65% of the stock in the prime areas around Manchester built pre 2010.

A lot of the stock is in the 100-200,000 ft2 size bracket, and while there is demand for this space it is not being taken up as quickly as the larger buildings. 

Lonsdale explains: “Because there is more on the supply side in this size bracket there is not such a scramble to take the space, occupiers know they have a choice and unless they have a pressing need to secure the space they are not in a hurry to do it. Conversely, because of the perceived dearth of units above 200,000 ft2 that is not the case.”

In addition, much of the space available may not be in the right locations for many occupiers with super prime locations in the region such as along the M62 corridor between junctions 20-23, short of even 100-200,000 ft2 units. Such is the demand for certain prime locations that even before a property is even built , occupiers are already expressing interest. This is the case for GLP’s Trafford Park site where occupiers are eagerly anticipating a speculative build for unit of some 216,118 ft2. GLP has yet to put a shovel in the ground. The nine acre site was acquired in an off market deal in 2022. Joint agents are Savills, GV & Co, and Cushman & Wakefield.

Many of the 100-200,000 ft2 units can be found around Ellesmere Port and Merseyside and while it is definitely not oversupplied says Atherton, it is skewed in towards this locality on paper. Goode notes that ‘while you may persuade an occupier out of an initial search zone looking for a bigger unit, an occupier looking for a 100,000 ft2 property in Manchester is not going to look in Liverpool’.

So once, considering size, grade, and location within the region, the seemingly abundant amount of space is not that abundant at all and goes a long way to explaining another anomaly of the Northwest market – increasing rents despite rising supply levels.

At the beginning of 2024 Savills forecasted that logistics rental growth in the Northwest would be the largest of any UK region for the period 2024-2028. It expects an increase between 4.8-6.3% per year.

Knight Frank’s latest Northwest LOGIC report notes that in the year to Q3 2024 rent levels for units of 50,000 ft2 upwards increased 11%. Knight Frank partner Sam Royle says: “Average rental growth forecasts have been revised upwards with a 5.5% growth rate predicted.”

Marshall CDP’s Cobalt 2 unit in Chadderton totalling 61,500 ft2 was let at a record rent of £10.50 per ft2 to ADI Global Distribution. In addition, Imperial 164, a 164,305 ft2 property built by Indurent was let on a 15 year lease at £9.50 per ft2 to clothing and textile manufacturer Cleland McIvor.

Johnson notes: “In terms of rent we have achieved £9.50-10 per ft2 on a variety of schemes and we are now looking at quoting rents of between £10.50-10.75 per ft2 for units over 90,000 ft2.”

For super prime areas quoting rents of £12.50 per ft2 are not unheard of and a sub 50,000 ft2 shed had a quoting rent of £14 per ft2. The latest B8 Real Estate research noted that across the multi let industrial sector rents of up to £18 per ft2 had been achieved on a 5,500 ft2 unit in Trafford Park. 

Johnson warns: “What we are seeing now and what occupiers need to get their heads around is that prime rents will be in double figures – potentially for the largest sheds as well.”

The good news about rising rents says Goode is that: “[They] are now getting to the point where sites are becoming viable again for development.”

Developer and investors are actively looking in the region and planning applications for sites are being submitted. Johnsons says he is involved in six 1 million ft2 plus schemes coming through the system.

As well as Tritax Big Box’s 2.3 million ft2 ILP North scheme, FI Real Estate has just put in plans for a 1.3 million ft2 scheme in Chorley; Stoford is bringing forward an 82 -acre site for a 1.1 million ft2 logistics scheme in Northwich, Cheshire, Indurent is looking to redevelop 20 acres for a 502,000 ft2 shed in Heywood Distribution Park in Rochdale. One of the biggest schemes coming forward in the next five years or so is Peel’s 800-acre site on the former Fiddlers Ferry Power station. In accordance with the area’s local plan, Peel is looking to facilitate the delivery of a primary school, local centre, 368 acres of public open space, 860 homes and 250 acres of employment land.