Road to confidence Gladman’s confidence in the area’s industrial market is shown by its plan for a massive scheme near Worksop. By Kurt Jacobs
If you want a sign that optimism is returning to the East Midlands market, then it is contained within the 265m sq ft planned for a quiet corner of the Nottinghamshire countryside.
Developer Gladman claims that Vertical Park at Bevercotes, just south of Worksop, will be – in terms of volume – the biggest single distribution opportunity in the UK. Most of the space on the 200-acre scheme, built on the site of a former colliery, will be contained within one 2m sq ft building, with eaves of up to 30m high. The development was given full planning consent in September, subject to section 106 conditions.
Gladman’s development manager Andy Hartwight admits: “Nottinghamshire’s been a difficult market for us to crack, but this shows that we have some optimism in the medium term for this part of the world.”
There are reasons for hope around Leicester, Derby and Nottingham. Marks & Spencer has just signed one of the largest prelets in the region at the 120-acre East Midlands Distribution Centre at Castle Donnington – where First Industrial Developments has formed a joint venture with EMDC owner Clowes Developments to build a 900,000 sq ft distribution centre at the site.
Meanwhile, King Sturge is putting the final touches to a 300,000 sq ft industrial and distribution deal. It is also understood that two separate deals for buildings of 270,000 sq ft and 244,000 sq ft around Mansfield are in the offing.
But, like others in the East Midlands, Hartwight’s optimism is tempered with a hefty dose of realism. On its Vertical Park project, Gladman has abandoned its usual speculative build and retro-fit approach to development for design-and-build.
The market in the heart of the region has been hit in a similar way to most locations across the UK. Nevertheless, take-up around Leicester, Derby and Nottingham in 2009 still reached 2.2m sq ft, not significantly down on the 2.5m sq ft filled by occupiers in 2008.
However, availability around the three cities soared from 4.8m sq ft in 2008 up to 6.6m sq ft at the end of 2009, of which less than 300,000 sq ft is grade-A space, says Midlands agent Innes England. Little surprise, then, that there is small appetite for speculative development.
Matthew Smith, partner at King Sturge, says: “Design-and-build is now very significant as it shows that an occupier has the optimism to make a long-term investment at commercially sensible levels, rather than soft deals. However, even design-and-build projects in this region have to be strongly positioned to succeed. Developments in the East Midlands away from the main roads will find it difficult.”
David Binks, partner at Cushman & Wakefield, adds: “In new buildings alone, there’s two years’ worth of stock in normal market conditions available across the three counties. Over the past year, speculative development has occurred in areas such as Swadlincote and Denby in central Derbyshire, well away from the motorways that might do well in a good times but struggle in a poor market.”
Both Smith and Binks touch on a point made by many in the East Midlands – that occupier interest has largely retreated to core areas, notably along the M1 corridor, and to a lesser extent, the A1. Outside that narrow band, rents have fallen to as low as £2 per sq ft, compared with the headline £5 per sq ft that can be fetched for good secondary space along the M1.
Potential sites
There is no shortage of potential sites for an occupier along the 40 miles stretching along the M1 from the East Midlands Airport – Britain’s biggest freight airport after Heathrow – to the Yorkshire border.
At the southern end is the Clowes-owned EMDC at junction 24. The ribbon then sweeps north past the 1m sq ft planned at ProLogis’s Eastwood Park at junction 26 and the 30-acre extension at Wilson Bowden’s Blenheim Industrial Park.
The motorway goes past 2m sq ft of office, industrial and warehouse space at Highbridge Properties’ Sherwood Park at junction 27, on to junction 28 and Wilson Bowden’s Gateway 28 and Clowes Developments’ 11-acre Castlewood scheme, which has consent for a further 2m sq ft. This includes two speculative units of 40,000 sq ft and 24,000 sq ft, which have been built.
Finally, a few miles short of Yorkshire, at junction 29a by Chesterfield, is Henry Boots’ 200-acre Markham Vale scheme, which will be dominated by the developer’s 585,000 sq ft Green Giant development.
Vertical Park, Bevercotes: most of the space will be in a single 2m sq ft building
M1 appeal leaves cities playing catch-up
It is easy to see the M1’s appeal to occupiers and developers in the East Midlands. It gives easy access to the South and East Coast ports; it has East Midlands Airport at one end and Nottingham’s Robin Hood Airport at the other; there are a series of multi-modal links with the East Coast Mainline; and its appeal is set to grow with plans to widen the motorway between junctions 25 and 28 to four lanes.
While attention has focused on locations close to the M1 and A1, the market has been less excited by properties sited closer to the three cities, all of which now have large amounts of secondary space.
Leicester has less than 60,000 sq ft of grade-A space out of 3m sq ft of industrial and warehouse space. Similarly, Nottingham’s 142,000 sq ft of available grade-A supply compares poorly with the 971,000 sq ft and 1.1m sq ft of good and poor secondhand space available.
And Derby’s huge block of 1m sq ft of poor secondhand space is three times the combined amount of its grade-A and good secondhand, at 88,000 sq ft and 260,000 sq ft respectively. Little wonder that secondary rents there are struggling to reach £3 per sq ft, almost half the amount a prime grade-A unit will fetch in Nottingham.
Looking forward, the M1 may carry a sting in the tail as developers in South Yorkshire – which has an even greater oversupply of space than the East Midlands – may look to lure occupiers from their rivals further south, forcing rents in the East Midlands lower still.
Sean Bremner, industrial and logistics partner at Lambert Smith Hampton, says: “The large-sized requirements are free and footloose. They will now go another 50 miles for the right deal. There is even more supply in South Yorkshire, and it may be worth a client going up a couple more junctions of the M1 for a better deal, despite the extra distance.”
The irony is that, at present, it is the smaller scale requirements that are buoying the market, particularly in the distribution sector. Bremner says: “The concentration of activity has been in properties of about 7,000-8,000 sq ft, particularly in the industrial sector. Some businesses have been able to use break clauses as they downsize, allowing others to take the opportunity of the deals available as landlords don’t want to sit on vacant properties. We’re also seeing businesses take advantage of administrations and acquiring the assets of rivals who have gone under. However, there’s still limited access to cash, which means this market has been strong on leasehold, weak on freehold.”
There has been a notable rise in interest from waste-to-energy companies for larger-scale industrial space, exemplified by Cyclomax taking 360,000 sq ft on Derby Commercial Park last May.
