Logistics Lunch | Summary, slides + pictures

The logistics sector was labelled both “positive” and “really horrible” by industry experts in a varied debate hosted by Place North West, as the panel of developers and advisers considered the demands of a market experiencing unprecedented changes.

The logistics briefing lunch was sponsored by AEW Architects and Hill Dickinson.

Andrew Pexton, director at Bilfinger GVA, opened the event with a comprehensive presentation giving an overview of the region’s logistics sector. He was joined for a panel discussion by Steve Burne, managing director of AEW Architects; Jim Purves, partner at Hill Dickinson; Adam White, development director at MAG Property; Andrew Dickman, director of DB Symmetry, property developer active in the sector across the North West, and Paul Crosbie, head of logistics at M&G Real Estate.

Click here to view Pexton’s presentation

Below is a summary of points made during the presentation and panel discussion

See gallery of photos at foot of page

Speculative development

• Pexton confirmed that “speculative build is back”, with projects totalling 3.6m sq ft in build or completed
• Almost 2m sq ft of speculative warehouses are to be delivered by the end of 2016
• According to DB Symmetry’s Dickman, speculative development remain high-risk, as a “big decision that has to fit the marketplace and be positioned to find an occupier quickly”
• Potential occupiers are being frustrated by a lack of new-build stock
• M&G’s Crosbie agreed speculative schemes are a risk, but said developers would be rewarded by yields of between 50 and 100 basis points higher than other prime stock

Deals

• Grade A big shed take up reached 1.7m sq ft over the past year in the North West
• The market is seeing more mixed deals and sub-lets
• Occupiers are choosing sites selectively; some won’t go to certain areas for fear of losing staff to competitors. The main focus is on customers getting products, and servicing a wide enough part of the market
• The market is moving so quickly many buildings are not being advertised with quoted rent as it changes rapidly
• Rents are typically £5/sq ft for Grade A stock

Design

• Dickman described an “evolutionary marketplace”, being driven by demands of e-retail companies, which will continue to grow in a variety of ways
• E-commerce companies want larger buildings in larger settings, with multi-layers to expand
• Challenge is creating environments that are future-proofed
• AEW’s Burne said that a big growth area was “the just-in-time market”, and this reflected in design; occupiers want longer, thinner warehouses, with more docks on one side, for the fast and efficient flow of goods
• However, there’s a risk that bespoke warehouses such as those required by e-commerce companies make the buildings too specific to one occupier
• Commercial tension between developers who will always want maximum floor area and occupiers who want surrounding space for vehicles, dock offices, ancillary uses

Occupiers

• Omni-channel retailers were described as “land hungry”, and in need of large yard areas, specific in size for parcel hubs
• In the automotive sector, location choices are driven by being nearby, co-locating or in close proximity to clients, to meet tight delivery times
• The sector is presenting challenging times to third party logistics companies, who are contract led, and don’t want to be tied in to a lease for 10 years if they can only confirm a contract for five years
• Hill Dickinson’s Purves described “really horrible, tough times for logistics companies”, as procurement teams from clients also put cost pressures on contracts
• Competitive market, approach of “if you don’t want the space, someone else will take it”, so hard for logistics company to be in a low risk position, said Purves

Retail and e-commerce

• Amazon is the name of the moment, taking 600,000 sq ft at Venus 110, Mountpark/Airport City and Union Square in recent months
• Burne pointed out the demise of the “big four” supermarkets had continued, and they “are no longer the hope of the speculative market that they once were”
• Pexton confirmed that the focus of take-up is from retailers or e-tailers
• Crosbie said that, with online retail sales to grow by 20% by 2020, this would impact on warehouse space. “Retail makes up 30% of the take-up, so warehouses will be the beneficiary”, he predicted.
• However, landlords should be aware that while online retailers are substantial businesses, they don’t have the balance sheets some might expect, Crosbie warned.

Planning

• MAG Property’s White pointed out that the Homes & Communities Agency’s employment information doesn’t factor in the growth of e-commerce on logistics land need
• Dickman said that pressure on logistics land is dramatic, with an increasing need to be located close to conurbations
• He called for the emerging Greater Manchester strategic framework to “re-base strategic distribution around the region, but that will mean difficult decisions by planners and politicians of where to put things”
• Devolution is a big opportunity, as it takes away NIMBYism as it is a large-scale plan governed by many authorities
• Pexton described the planning process as “a brake on industry”, creating a backlog of schemes, on an already limited land supply
• Burne pointed out that in the emerging framework, the emphasis has been on housing need: “employment is secondary and it must be brought forward”
• He said he expects another wave of speculative buildings, as there is appetite from clients, many of which are in partnerships with five year plans

Land/sites

• The seasonal demands of the retail market mean greater flexibility is needed on site – the amount of people employed at a warehouse might fluctuate at any one time, so want bigger car parks, and more security
• Pexton said that the top tier of sites where development has been primed in advance have been the most successful in the latest wave of development
• Prime sites are places such as Omega, Warrington, Logistics North in Bolton, Airport City in South Manchester and Kingsway Bolton
• At Airport City, White said there is 1m sq ft of outline planning consent, and one warehouse is already under offer at its Alpha logistics complex
• LaSalle is funding Alpha through the speculative phase, and 35% will be let pre-completion

Brexit – the panel’s view

• M&G’s Crosbie said he believed “logistics is immune to a certain extent, as it is internal consumption which drives the market and will continue to do so”. He conceded that with many EU employees in the sector, staffing might be a concern if the UK voted to leave the bloc on 23 June
• While Burne withheld his view on whether to vote in or out, he called on the audience to “please use your vote either way”, and described the run up to the referendum as “an uneducated process, driven by scare tactics”
• Based on his involvement with foreign investors, Dickman said that the five-year view was “in or out will have little or no effect, but what it will impact is the next two to four years of big insecurity”
• Purves agreed with the view on the impact of the short-term uncertainty, but “exporters probably won’t be excluded from the UK, so there is little effect there”
• Pexton said that he had already lost many clients who had put projects on hold due to the uncertainty

Click any image below to launch gallery

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