Pretender to the crown?

SOUTH YORKSHIRE, and possibly Doncaster at its heart, is the beating hub of logistics in the north of the country. But could it ever be a contender to usurp the Golden Triangle?

There are certainly some who say that it could be a viable alternative.

The phrase ‘golden logistics triangle’ was first coined in the 1980s and covered an area centred around Magna Park Lutterworth wherein which 90% of the British population could be reached within a four hour drive. 

It was a logical choice to locate distribution centres in the region and proved extremely popular when the biggest concern for operators was location, location, location. But a lot has changed since the 1980s – not least logistics. What was important then may not be so important now.

In the last decade the number of business premises used for transport, logistics and warehousing in the UK has almost doubled - driven largely by the rise in online shopping - and areas not previously associated with logistics have come to the fore, most notably Yorkshire and The Humber according to analysis by the Office for National Statistics.

In 2021, there were 11 local authority districts in the UK where transport and storage was the dominant industry. These included Rugby, Peterborough, and Doncaster. By comparison, in 2011, transport and storage was not the main industry in any part of the UK.

“Logistics has been good to Doncaster,” says Business Doncaster head of service Chris Dungworth. “But it was not a strategic decision - more a happy accident that the logistics industry saw the way Doncaster was situated and brought it forward. At the time it was a godsend, and we are happy to push ourselves as the logistics capital of the north, both, in terms of the quality of businesses coming in and the job opportunities.”

Business Doncaster head of service Chris Dungworth

But is still not truly considered by the majority of national and international operators as a base for a national distribution centre.

Trammel Crow Company’s development director Matt Jones explains: “It’s a different market to the Golden Triangle, its appeal lies in the fact that it can serve the north of the country and is frequently seen as an overspill region from the north Midlands.”

Trammell Crow has recently completed the development of a 367,151 sq ft warehouse known as Core Parks Sheffield which is targeting local and regional occupiers and national occupiers seeking a Grade A carbon net zero regional distribution centre. The property has been built to BREEAM excellent and EPC A ratings.

Basically, the region is perceived as being just a little too far north to be able to serve the vast majority (90%+) of the country within tacho rules of 4.5 hours of driving before a 45 minute break is legally required. A fact that Wilton Developments managing director Jason Stowe has been at pains to dispute as he promotes Doncaster North, a 3.5 million sq ft industrial and logistics development near Doncaster just off Junction 6 of the M18 motorway, as a national distribution centre location.

He commissioned a CBRE Supply Chain & Advisory report on the 180-acre Doncaster North site which came up with some interesting facts about the location. Around 94% of the UK population is accessible within tacho guidelines - outperforming the Golden Triangle, it is within easy reach of five national motorways, the M1, the A1, the M18, the M62 and the M180 leading north, east south and west. Some 31% of all UK port tonnage is within a two hour drive time (Immingham and Hull) and it is in close proximity of two major rail freight terminals: Wakefield and iPort.

Business Doncaster’s business development officer Alex Docherty says: “On those facts alone you can realistically see why a lot of the logistics providers are here.”

CBRE’s head of industrial & logistics, north Mike Baugh agrees: “Amazon, Ikea, Next, Boohoo - they are all here; it is a great logistics location, less congested and cheaper than locations elsewhere in the UK.”

The issue is that the Golden Triangle has been established for decades and the vast majority of national logistics operators have based their supply chains predicated on centring operations from a national distribution centre in the Midlands; to change that to Doncaster or South Yorkshire would be to upset the traditional hub and spoke working model already in place. However, for an operator/retailer etc looking to enter the UK market then that, as they say, is a different ball game. Amazon did not start out with a distribution centre in the Midlands – its first was in Swansea and second in Dunfermline. The majority of its huge 2 million sq ft plus fulfilment centres can be found in the north (Darlington, Durham, Teesside, and Hull) where it can access large swathes of land and skilled labour at a discount to the traditional logistics heartlands. 

Stowe has one of the only fully consented million sq ft plus plots in the country at his site. Known as Milli +, once built the building will total 1.15 million sq ft with 1.09  million sq ft of cross dock warehouse space and 60,000 sq ft of Grade A office space. The warehouse itself will boast 31m eaves, 156 dock and 12 level access doors, 150 HGV and 788 car parking spaces and have 80kn/sq ft  floor loading as well as 55m yards on a self contained 49 acre plot within the first phase of the Doncaster North scheme. It will be built targeting a BREEAM Excellent and EPC A rating.

“There may be lot of sites that could accommodate a million sq ft facility, but how many actually have reserved matters planning and can deliver now? Planning takes a long time and between outline planning and securing reserved matters can take 12 months – there are requirements in the market for that size of building right now and we can deliver,” he says.

CBRE’s Head of Industrial & Logistics, North Mike Baugh

CBRE Advisory’s report has compared the annual operational savings for a 1 million sq ft pallet operation at Milli + in Doncaster North to an equivalent building in the Midlands and found that there was a 5% saving. Stowe reckons there could be as much as £150,000 a year saving on business rates and 15% discount on rent in comparison.

This is verified by research by real estate analyst CoStar which records average rents 15% cheaper in the region compared to the Midlands across all grades of space with a gap up to 30% for prime Grade A new build space which is averaging £9.35 per sq ft in the Midlands versus £7.50 per sq ft for big sheds in Doncaster and South Yorkshire.

“Looking closely at wage levels surprisingly there does not seem to be much in it compared to say North Northamptonshire,” says CoStar’s director of market analytics Grant Lonsdale. “There is a 2% discount in Doncaster and a 7% discount in Sheffield, but the main factor is that wages go further in the region with house prices averaging £100,000 cheaper - a discount of 40% - to the Midlands.”

For Stowe this means one thing: “In Milli+ we have the largest available single unit consent in the UK which provides a credible and affordable alternative to Golden Triangle locations.” 

Definitely food for thought.

So, what is happening in the region at present? In a similar vein to much of the rest of the country, there is a distinct lack of take-up as occupiers hunker down awaiting more economically clement weather prior to committing to new space.

CoStar’s commercial property analyst Giles Tebbitt says: “In Doncaster there has been almost no take up and Sheffield, though not as stark, is not that much better either. Occupier activity has dropped off this year. It seems when you slow down on demand in the Midlands/North Northamptonshire, South Yorkshire gets hit harder because there is more availability in central areas and occupiers prioritise the Midlands locations over the northern ones.”

That aside Jones says: “Latent occupational demand is still there just moving slowly.” 

Baugh agrees: “Operationally many occupiers are ready to go but are struggling to get board approval, the odd deal has fallen out of bed, but none have gone away completely. Many companies are concerned about consumer behaviour and dependent on what retail confidence there is.”

Colliers director industrial & logistics north Robert Whatmuff says: “There are some strong named occupiers in the market specifically targeting the region, but everyone is in a state of limbo.” He cites a 500,000 sq ft requirement from Superdrug, and a similar one from Electrolux to name but two.

As a result of the slow down there is relatively speaking a lot of space available and coming to market. It really seems to be all or nothing in the region.

Knight Frank head of industrial in Yorkshire Rebecca Schofield

Knight Frank head of industrial in Yorkshire Rebecca Schofield explains “At the end of the first half of 2022 there was a total of 1.83 million sq ft of industrial space over 50,000 sq ft immediately available with 73% under offer with occupiers already in advanced discussions.

“With so little stock available and demand for the year to June 2022 hitting 3.13 million sq ft it was no wonder developers and landlords hit the speculative button.”

Now all that space is coming to market at a time when take-up has plummeted due to economic uncertainty not helped by last years’ disastrous mini budget by Liz Truss’s government and subsequent rapid increase in interest rates which took everyone by surprise. 

Recent research by Knight Frank puts total supply for units over 50,000 sq ft at 6 million sq ft which equates to around two years worth of supply against the region’s five year average annual take up.

Avison Young head of industrial agency Yorkshire Rob Oliver admits: “It would be hard to argue there isn’t an oversupply at the moment.”

Yet none of the property agents or developers interviewed are unduly concerned.

Commercial Property Partners (CPP) director Ed Norris says: “At height of the last recession back in 2007/08 there were 43 buildings available across the Yorkshire region - we are nowhere near that now. Take one building out now and suddenly there is a dent in supply.

GV& Co’s director Andrew Gent agrees: “It does look bad on the surface but while there is a high floor space total it comprises a lesser number of buildings therefore it will take a lesser number of deals to get rid of it all.”

Baugh says: “After the GFC it felt like the space we had available was less strategic and take up was very much dependent on supermarket retailers – it is a very different story now with a much broader base of occupiers.”

Whatmuff adds: “There is an air of caution with operation guys shuffling things around in the networks or else moving things out to 3PLs – a sticking plaster, not a long term solution. Once the economy and interest rates stabilise, occupiers will be more confident to take space and what supply there is will get quickly soaked up.”

The concern actually is not that there is an over supply of space now but that there is a dearth of speculative space being brought forward.

Oliver says: “There is very little speculative space coming forwards in the next 18 months, so south Yorkshire big box aside, there are likely to be shortages of product and choice in other locations and sizes. This is due to less confidence, less capital, build costs, investment yields and broader development appraisal. It means limited choice for some occupiers, who are often constrained by existing staff to a relatively tight search area.”

With that in mind and the state of the market right now, most agree that for those occupiers that can, the time is right now to secure space. 

Wilton Developments managing director Jason Stowe

“Lease terms are easing,” says Norris. “Landlords are offering bigger rent free periods right now, but this is really the only adjustment we have seen - we are not coming off headline rents as these are still being achieved.”

“However,” says Whatmuff, “tenants can get more market flexibility in terms of lease lengths with second hand stock with many landlords seeing a short term lease as an opportunity to push rent growth.”

Currently there are a number of second hand units on the market including the two Amazon units at First Point Doncaster of 245,000 sq ft and 415,000 sq ft by way of sub lease or assignment with a passing rent of £6.50 per sq ft. There is 336,000 sq ft available at SIRFT with 24,000 pallet spaces, and up to 515,000 sq ft at Sherburn 500 on assignment at a rent between £6.25 and 6.50 per sq ft. There is also MH Star’s 123,811 sq ft unit at Aspect  on West Moor Park which has 17,000 pallet spaces.

Not all occupiers are willing or even want second hand space and as it has already been noted there are plenty of facilities  immediately and shortly becoming available. These include Firethorn recently completed Barnsley 340 scheme off Junction 36 of the M1 motorway which totals 340,300 sq ft and is being marketed by Knight Frank and GV&Co, in addition there are still units at iPort from 83,777 sq ft to 330,104 sq ft through joint agents GV&Co, CBRE and Colliers.

Panattoni is pushing forward with its 417,570 sq ft Doncaster 420 unit which is being marketed by CPP, Colliers and Cushman & Wakefield, while Blackbrook and Rula Developments has a 405,411 sq ft warehouse known as Eclipse at Waystone Hargreaves Land’s Unity scheme. CBRE and Colliers are joint agents.

While take up has slowed there are schemes still being brought forward and where possible being made oven ready. As well as its Milli+ warehouse, Wilton Developments also has reserved matters planning for a further seven units at its Doncaster North scheme from 21,750 – 372,500 sq ft. Joint agents are CBRE and Knight Frank.