A bit like seagulls hovering over a shoal of fish, industrial occupiers on the south coast have gradually picked off any good quality industrial buildings.
Future supply is likely to come from a small number of design-and-build schemes or refurbishments, with very limited development land coming forward.
According to BNP Paribas Real Estate, there was a total of 200,000 sq ft of space in buildings above 50,000 sq ft in the M27 corridor in Q2. But the figures include Andover and Winchester, while in Southampton and Portsmouth there are now no new buildings of that size.
The last part of a former tranche of development disappeared in May when packaging firm Contego took a 50,000 sq ft building at SEGRO’s Trilogy scheme in Segensworth, which lies between the two cities.
“There is a general lack of quality supply,” says Lambert Smith Hampton director Jerry Vigus. “Over the past 10 years, there has been little development of institutional-quality stock above 30,000 sq ft.”
Even when secondhand space is considered, there are hardly any modern sheds of this size. “When it comes to good-quality modern buildings, there are only two,” says Jones Lang LaSalle associate Matthew Poplett.
These are a 38,000 sq ft building at Hamilton Business Park in Hedge End and an 87,000 sq ft unit at Stoke Park, formerly occupied by US teddy bear maker Russ Berrie.
This comes at a time of increasing demand. BNP PRE’s research shows take-up of 340,000 sq ft of units above 50,000 sq ft on the M27 in the first six months, compared with 170,000 sq ft in H1 2010. There are also a number of occupiers with active requirements (see below).
There is further bad news for anyone trying to find new property in that there are only a few design-and-build opportunities.
A unit of up to 80,000 sq ft could be developed at Hamilton Business Park. And in Portsmouth, SEGRO could build up to 250,000 sq ft at its Voyager South development and 80,000 sq ft at its Merlin Park scheme – the firm is in advanced talks for a 60,000 sq ft prelet at the latter.
Economies of scale
SEGRO’s regional director Vicki Patterson says: “If that does happen we would contemplate spec development of the remaining 20,000 sq ft because of the economies of scale we would achieve with build costs, and because we believe there is demand at that size.”
However, according to BNP PRE associate director Philip Holmes, current economic conditions mean that pure speculative development is highly unlikely. “It’s not going to happen without a decent tenant already in tow,” he says.
Some relief may be on the horizon. Although vast amounts of new development land have failed to pique developer interest, a nine-acre plot formerly occupied by electronics firm NXP, is being sold by Cushman & Wakefield, and is rumoured to be under offer to a developer.
A site known as Test Lane South was identified by the council as a potential industrial plot in 2006 but has not yet come forward. “If that site became available you would get 15-20 people bidding for it,” says Poplett.
Other sites, including a 48-acre area north of Southampton airport at Eastleigh, have long-term potential.
There are also shortages of smaller modern buildings, according to Gary Moore, head of acquisitions at ING Real Estate Investment Management UK.
The company bought 12 units ranging from 3,000-9,000 sq ft, nine of which were vacant, at Southampton Trade Park a year ago. It then rebranded them as industrial units, not trade counters, and slashed the rent to £6.50 per sq ft – at one time they had been on the market at £12 per sq ft. All are now let or under offer.
“A lot people said it was risky, but we saw a gap in the top end of the market,” Moore says.
With few development opportunities available, landlords are turning to refurbishments to meet demand.
PRUPIM is revamping three units of 9,000 sq ft each at Griffin Industrial Estate in Southampton, while Standard Life Investments is refurbishing four former Co-op buildings totalling 190,000 sq ft at Fareham Industrial Park.
If such measures do not satisfy the market, occupiers might have to do what the seagulls have increasingly done over recent years – head inland.
Occupier interest picks up
Several companies are looking to take space along the south coast, including Lidl, which wants to build a 430,000 sq ft distribution centre on a 25-acre site in Nursling, Southampton.
The company exchanged contracts last year with the landowner, Barker-Mill Estates, to buy the site subject to planning, and is likely to submit an application in November.
Andrew Archibald, a director of the landowner’s adviser, Keygrove, says: “Both we and Lidl are pretty positive about the outcome.”
Agents say there are a number of requirements from 30,000-100,000 sq ft, including parcel firm UPS, which is looking for 60,000-70,000 sq ft. Logistics firms DHL and Kuehne + Nagel are also thought be looking at the market.
Another parcel firm, Geopost UK, has been searching for a design-and-build opportunity in Southampton for 14 months, and is in negotiations with Hargreaves Group at Hamilton Business Park about a 36,000 sq ft prelet.
Geopost, which will move from an existing 20,000 sq ft unit in Southampton, looked at a number of sites around the area but found that most were unsuitable.
Technical services director Mark Wilkes says the company has very specific operational requirements. “We needed a developer who could deliver as fluid a design as possible,” he says.
