In the fourth episode of our Outside the Box podcast, we focus on the occupational requirements within the industrial and logistics sector. How has occupier demand changed during 2023 and, with an increasingly diverse occupier mix, is the industrial and logistics sector addressing the needs of occupiers? Paul Grayson, Senior Associate at Fosters chats to Tom Shaw, Director in the industrial and logistics occupier advisory team at Savills.
Forsters advises Fiera Real Estate and Wrenbridge on acquisition of Heathrow logistics scheme
16 June 2023
News
Forsters has advised Fiera Real Estate (“Fiera”) and Wrenbridge on the acquisition of a site 1.5 miles from Heathrow airport for £60m.
Acquired from residential developer, Stonegate Homes, the plan is to develop a 110,570 sq ft urban logistics scheme, comprising of three units ranging from 22,131 sq ft to 58,127 sq ft.
The site will also be targeting an EPC rating of A+ and a BREEAM Excellent rating.
This deal is the fourth to be completed by the Fiera Real Estate Logistics Development Fund UK, which has roughly £200m left with which to invest in similar schemes across the UK.
Fiera fund manager Chris Button commented the development would deliver “much needed, sustainable, high-quality urban warehousing.”
Commercial Real Estate Partner and Co-Head of the Industrial and Logistics group, Victoria Towers, says: “We are delighted to continue our close relationship with Fiera and Wrenbridge by advising on the acquisition of this site, which will bolster the South-East’s sustainable warehousing credentials.”
Victoria Towers, assisted by Senior Associate, Paul Grayson, advised on the deal.
BISNOW Seminar – The UK’s Industrial and Logistics Transformation
21 April 2023
News
On Tuesday 18 April 2023, Commercial Real Estate Senior Associates Daniel Steele and Paul Grayson attended the BISNOW seminar on The UK’s Industrial and Logistics Transformation at the Royal College of General Practitioners.
The seminar focused on two key themes:
Investing In Industrial: Is The Bubble Going To Burst? and
The Future Of Industrial: Sustainability And Technology,
as well as a general discussion regarding the green industrial revolution. The speakers came from a variety of backgrounds, including international investment managers, UK big-box developers, London-focused developers, real estate consultants and a representative of the UK Warehousing Association.
Daniel and Paul share some key insights and thoughts from the various discussions as follows:
Wishful thinking
When each asked one thing that the panellists wished would happen in the next 12 months, pleas for changes to the planning system, for market participants to adjust their expectations and for a move towards adopting multistorey industrial options were all mooted.
It was widely acknowledged by panellists across the afternoon that the current planning system does not appear to be working and changes need to occur in order to make this more transparent and consistent across the UK.
Some market participants still appear to be clinging to memories of before the Liz Truss mini budget in September 2022 and are not adjusting their expectations. While prices are slowly adjusting to realistic levels, the panellists believed that there has been a structural change in pricing that should be accepted and built upon, rather than relying on prayers and hopes of what has happened historically.
Multi-storey developments are common in Europe but UK occupiers appear to be slow to adopt this. Given the demand for space multi-storey options should be considered by tenants as viable options to their needs and should be encouraged by agents to increase uptake. That said, the panel did acknowledge that occupiers will not fully commit to multi-storey developments until it can be widely demonstrated that the ramps/lifts between floors can adequately sustain the demands of industrial use.
High Voltage
While there is a push towards adopting green energy and adapting operations and assets to avoid the use of fossil fuels, there is concern as to whether the grid has the capacity to tolerate increased energy consumption. To mitigate future energy concerns, many developers and landlords are opting to put solar PV panels on their buildings but there are still questions regarding how (and if) excess capacity can be returned to the grid and at what return? Is there enough incentive to developers or landlords to install solar PV panels if the tenant does not have any need for excess power and the energy cannot be sold back to the grid at a reasonable rate?
i-Robot
Many tenants are investing in robotics and are leaving room in their plans to accommodate expanded robotics schemes in the future. The UK market, however, faces issues in attempting to expand robotics, such as:
as mentioned above, does the UK have the energy capacity to cope with this? and
are there enough engineers in the UK to service them?
A panellist described an example of an entire automated facility shutting down and having to wait for an engineer from Europe to fly over and fix the situation. Should the industry be offering apprenticeships so that the UK can train their own engineers to facilitate the expanding growth of robotics in industry?
Mixing it up
The rise of dark kitchens, vertical farms and film studios occupying warehouse space all offer opportunities for access to new tenants and therefore new growth and demand, particularly for urban and last-mile logistics sites (assuming the sites have the energy capacity to cope with tenant’s requirements – film studios are energy hungry!).
ESG and benchmarking
Whilst the market is rightfully driving the ESG agenda, there is still no commonality as to what “net zero” means. Each market participant is undertaking their own ESG initiatives, however the lack of commonality makes it difficult to benchmark one’s performance against others in the market. The market needs to be more transparent as a whole, perhaps an alien concept to investors and developers who closely guard key information such as yields.
Lockton Property Issues Seminar – overview of the UK industrials and logistics market
22 February 2023
News
On Wednesday 22 February 2023, Commercial Real Estate Senior Associate Paul Grayson attended the Lockton Property Issues Seminar at Lockton’s offices at The St Botolph Building, 138 Houndsditch, London.
As part of the Property Issues Seminar, Kevin Mofid of Savills provided an overview of the UK Industrials and logistics market. Paul shares his key takeaways from this overview as follows:
Logistics take up remains high – 2022 was the third highest year in history for logistics space take up (with 47 million square feet of space been taken up). 2021 was the highest ever year, closely followed by 2020 (noting that in both 2020 and 2021, take up exceeded 50 million square feet). 2022 may have represented a seemingly sharp drop in take up, however this is only when comparing 2022 with the “Covid amplification years” of 2020 and 2021;
Regions are generally outperforming the long term annual average in terms of uptake – when looking at the data from 2022 as against the long term annual average for uptake, most regions are outperforming the long term annual average. For example:
The East Midlands is 40% above the long term annual average;
Yorkshire is 75% above the long term annual average; and
The North West is 69% above the long term annual average.
In contrast, the South East is currently 17% below the long term annual average. This perhaps reflects the lack of availability of stock in this region, as well as sustained rental growth;
A potential opportunity for second hand stock – in 2022, only 22% of take up was for second hand stock. In comparison, 50% of take up was for “build to suit” buildings. This perhaps reflects a flight to quality, however due to the rising cost of debt, build to suit schemes are becoming harder to fund. This may lead to an increase in demand for existing buildings;
The EPC timebomb for second hand stock – in contrast, a number of existing warehouse buildings risk becoming stranded assets due to the upcoming changes to the minimum standards required by the MEES Regulations. 90% of warehouses in the UK below 100,000 square feet currently have an EPC of C or below;
The supply chain faces multiple challenges – the supply chain faces numerous global challenges in the future. For example:
Chinese labour costs have risen by 250% since China joined the WTO in 2001;
One quarter of global trade is carried out with high-risk countries; and
International trade accounts for 20 – 30% of global emissions.
Manufacturing uses on the rise – 2022 saw the highest amount of warehouse space ever taken up in relation to manufacturing uses such as life science R&D, automotive production and battery production; and
The logistics sector will always be in demand as it is a necessity – despite challenging economic conditions, the logistics sector will continue to be the backbone of the country. Warehouses should be viewed as places of national infrastructure which are absolutely necessary in order to keep the country moving.
The conference consisted of a number of interesting panel discussions involving key members of the logistics sector, as well as a free trip on the Mail Rail (see photos below)!
In this blog post, he shares his key takeaways from the event.
Current Market Conditions
The developer’s view: Inflation has led to a sharp increase in the cost of materials. Additionally, it is very difficult for developers to forecast pricing in the current market. Developers can only price developments based on today’s information. The current market volatility is requiring developers to make more assumptions than usual when forecasting how much a site will be worth once a development has reached practical completion.
The contractor’s view: The rise in the cost of materials has led to questions as to whether contractors can still deliver fixed price building contracts. The view is that this may still be possible, however it will depend on the type of project and the material selection. The earlier that contractors engage with their customers, the higher the chance that a fixed price building contract can still be delivered. If a fixed price building contract can be delivered, the customer may need to accept a mark-up on the fixed price to reflect current market conditions.
The investor’s view: Pricing is cooling due to the rise in interest rates and inflation. Investors are currently querying whether we have reached the bottom of the market, or if prices will decrease further. This has created a large amount of hesitancy in the market. If investors commit to sites in the current market, it is very likely that the investment decision will be due to the investor believing in the long-term vision for the site (as opposed to making a commitment solely due to pricing).
Delivering ESG
Carbon sequestration: Science is likely to change how buildings are constructed over the next twenty years. There needs to be a shift towards materials which use less carbon, as well as an increase in funding for businesses who are studying how to remove carbon from the atmosphere and holding the same within materials (a process known as carbon sequestration).
Retrofitting: In comparison to other sectors, the logistics sector is unlikely to have a large problem with retrofitting existing stock in order to meet EPC standards. There are a number of ways in which the energy efficiency of a warehouse can be improved, such as the use of LED lighting, increased thermal insulation and the use of solar panels. Solar panels can give rise to fire risks (due to the temperatures that the panels can reach), however the general consensus is that this risk can be alleviated by raising the panels above the roof of the warehouse in order to allow an air flow below the panels.
Ensuring that logistics and residential schemes can co-exist: As logistics and residential schemes move closer together (due to the increase in last mile logistics), efforts need to be made to ensure that these schemes can co-exist. Electric vehicles are required to safeguard air quality in urban areas. From a planning perspective, a masterplan approach can help industrial schemes integrate into local areas. Site layouts and frontages which include green space can make logistics schemes more attractive to local communities.
Diversity and Skills
Demystifying the logistics sector: The logistics sector needs to be demystified in order to make the sector more attractive to a diverse talent pool. Long hours are commonly associated with transportation jobs within the sector. However, due to the rise in last mile logistics, a number of driving roles can now support daytime hours and those members of society who need to maintain both a family and professional life.
Social values: The next generation of employees will overlook a higher salary for a firm which has social values that they share. The logistics sector needs to be better marketed to young people leaving school in order to attract talent from the youngest possible age.
Automation: It should be conveyed to the future workforce that automation will not remove all jobs from the logistics sector. Automation will change the nature of the jobs required and will increase the need for engineers and technicians.
Multi-storey Sheds
Multi-storey vs mezzanine: Warehouses may not need to be fully multi-storey in order to service interested occupiers. A large warehouse with a functioning mezzanine may perform just as well as a multi-storey shed which is serviced by ramps.
Occupier demand: Whilst it is interesting to discuss the architectural challenges/viability of multi-storey sheds, the key question is whether there is occupier demand. Before committing to a multi-storey space, occupiers will want to ensure that the space is resilient and can respond to a goods lift breaking down on the third floor or a HGV breaking down on a ramp between floors. Ultimately, occupiers will only have confidence in multi-storey sheds once such schemes are more common in the UK market.
Functioning spaces: From a developer’s perspective, intensification of space is generally attractive (more lettable floor space results in a higher possible rent). That said, intensification cannot come at the cost of functionality. Large logistics operators will always need large yard areas in order to accommodate HGVs.
Forsters advises a Wrenbridge / Bridges joint venture on over 700,000 sq ft of net-zero carbon logistics space across the South East
4 October 2022
News
Forsters has advised a joint venture between Wrenbridge and Bridges Fund Management on the acquisition of sites in Aylesford, Basingstoke, and Stevenage and in securing planning permission for up to 700,000 sq ft of new, net-zero carbon logistics space across the sites in the South East of England.
Commercial Real Estate Partner Victoria Towers and Senior Associates Paul Grayson, Ed Glass, and Charlie Croft advised on the deals, with GLP UK also supporting the developments in Basingstoke and Stevenage through forward funding.
At Aylesford the site has planning permission for 300,000 sq ft across six units and will include substantial solar panel and air source heat pump installations expected to avert over 500 tonnes of CO2 emissions, while reducing tenant energy bills by at least £200,000 per year. Building work will begin on site at the end of 2022, with the property in line to become the most sustainable scheme in Kent. Ben Coles, Chief Executive of Wrenbridge, said the scheme’s “proximity to motorway connections is unrivalled.”
The Basingstoke and Stevenage sites both have planning permission for over 205,000 sq ft, with a single 209,461 sq ft facility expected to be completed at Basingstoke in 2023, while at Stevenage three facilities ranging from 25,736 sq ft to 106,531 sq ft (the largest of which has been pre-let to FTSE 100 company Bunzl) also expected to complete in 2023. The units are to be built to net-zero carbon and Exemplar ESG specifications. Wrenbridge Chief Executive Ben Coles said: “We are excited about developing these schemes and working with GLP to deliver a best-in-class product backed by a pre-let to Bunzl in Stevenage.”
All the sites will be targeting BREEAM Excellent and EPC A+ ratings, and Bridges Fund Management Partner Henry Pepper said: “At Bridges, we are committed to delivering some of the most sustainable industrial schemes in the UK – not only because it reduces emissions and supports the transition to net zero, but also because it makes the buildings more attractive to potential occupiers.”
Victoria Towers commented: “We are excited to be working with Wrenbridge and Bridges on these projects and to be leading from the front when it comes to the green agenda. Not only is the connectivity of the Aylesford site exceptional, but the combined schemes will be best in class in terms of sustainability.”
Forsters advises Fiera Real Estate and Wrenbridge on purchase of £33m ESG Exemplar Industrial Scheme in Portsmouth
31 May 2022
News
Forsters has advised Fiera Real Estate (‘FRE UK’) and Wrenbridge on the purchase of a 4.5-acre site in Portsmouth for a £33m ESG Exemplar Grade A industrial scheme.
Commercial Real Estate Partner Victoria Towers and Senior Associate Paul Grayson advised on the deal, which aims to obtain planning permission for seven industrial units ranging from 6319 sq ft to 29785 sq ft.
Sustainability and wellbeing considerations are central to the proposed scheme, which is targeting BREEAM Excellent and an EPC A rating. It will offer high efficiency heating and cooling systems, water-saving fixtures and fittings and PV panels will be fixed to all buildings. During construction, the scheme will promote the use of locally sourced goods and low-emitting carbon materials, as well as ensuring that the contractors are part of the Considerate Contractor Scheme.
Will Jarman, Associate Director at Wrenbridge commented: “we are delighted to secure this prominent site in Portsmouth and view this transaction as the first of many within a strategic push towards the M27 corridor on the South Coast. We are in discussions with occupiers on pre-lets as we plan to bring forward a highly sustainable scheme to the area. Wrenbridge and Fiera have significant capital to deploy into the industrial and logistics sector across our key geographies, with the South Coast now also firmly in focus.”
Forsters advises Wrenbridge and Fiera Real Estate UK on purchase of 56,117 sq. ft. of industrial units in Crawley
28 April 2022
News
Forsters has advised Fiera Real Estate UK (“FRE UK”) and Wrenbridge on the purchase of a 2.4 acre site in Crawley consisting of five industrial units which total 56,117 sq. ft.
The business plan is to obtain planning for a new 65,000 sq. ft. Grade A industrial warehouse development with a GDV of £27m.
The site was purchased through the Fiera Real Estate Opportunity Fund V UK, the latest fund in FRE UK’s programmatic venture series with CBRE Global Investment Managers. This is the 16th acquisition for the Fund which reached its final close earlier this year with £180m of capital and is targeting similar sites for industrial development around the UK.
Chris Button, Fund Manager at FRE UK, commented “We are very pleased to be bringing forward yet another high-quality and sustainable scheme alongside our Operating Partner, Wrenbridge. This is the latest acquisition for our value-add Fund, FREOF V UK, which currently has a pipeline of more than 1.4million sq. ft. of industrial and logistics space. The Fund is targeting similar sites for speculative industrial development around the UK.”
