Commercial Property focus: Restricted supply of North East 'Big Sheds'

Following a record-breaking 2014 for industrial space take-up, the market is facing a dearth of big sheds

The former M&S unit at North Tyneside
The former M&S unit at North Tyneside

As the North East industrial property market continues to gather pace, the region faces a dearth of big sheds, leaving the outlook for attracting new, large job-creating companies restricted by a shortage of suitable buildings.

This time last year it was anticipated that 2014 would be a busy and successful year for the North East industrial market, particularly in relation to the take-up of big sheds of over 100,000sqft.

That was proved right by DTZ Research’s Industrial Property Times report which revealed take-up in the North East reached 2.3msqft, the strongest year on record, with 1.4msqft of grade A deals completed, driven largely by manufacturing companies.

It was also predicted there would be a significant shortage of big sheds in the region by the end of 2014.

Business, Artists impression of a development at Indigo Park NE3 5HE
Business, Artists impression of a development at Indigo Park NE3 5HE

Plans are in the offing however, including through the re-emergence of speculative development, including Highbridge Properties’ Indigo Park plans and UK Land Estates’ Team Valley scheme Kingsway North.

Other solutions are needed, however.

Chris Donabie, associate director, industrial agency at DTZ in Newcastle, said: “Refurbishment of secondary premises should be given more consideration as the supply squeeze continues and this has proved successful for UK Land Estates, with the letting of S3 Tyne Tunnel Estate (104,000 sq ft) in early February 2015 after a comprehensive refurbishment programme.

“Occupier demand is encouraging in early 2015 and this along with the lack of stock is pointing toward rental growth and further hardening of incentives in key locations.”

Keith Stewart, director of industrial agency at Naylors Chartered Surveyors, said the firm is in discussions with three occupiers for large design and build opportunities.

He said: “Developers are promoting large sites and Naylors are actively marketing a number of sites for development including 11 acres with full planning consent at Drum Industrial Estate on behalf of Gladman, 40 acres on Team Valley on behalf of UK Land Estates and 12 acres on behalf of The Northumberland Estates at Tyne Tunnel.

The Kingsway scheme by UK Land Estates which is radically rethinking industrial space

“In addition there are 90 acres in phase one at Bowburn Industrial Estate in Durham with outline consent.”

Richard Scott, partner at Sanderson Weatherall agreed the supply of Big Sheds is at critical levels, but said: “Even though the North East industrial market is performing strongly, led by a strong manufacturing base, speculative development doesn’t stack up.

“The small schemes referred to have been heavily reliant on grant funding to make them work so we are still some way from any large scale speculative development.

“Any new development will have to be at rents upwards of £6 per square foot which will be new territory for the market.

“What is needed are a couple of deals at a new level of rent to allow the market to move and hopefully make development more viable.”

Danny Cramman, head of industrial agency at GVA, Newcastle, added: “Within the last four months four of the largest available properties have been either let or sold and there is little evidence of any supply chain to redress the imbalance of supply and demand.

“The region needs to find a way to encourage developers back to the market to give the manufacturing and distribution sectors the space to establish, grow and create sustainable jobs.”

The recent letting of the 103,950sqft former Marks and Spencer distribution warehouse at UK Land Estates’ Tyne Tunnel Estate, North Shields, continues the theme established late last year for some very large lettings says Simon Haggie and Mark Proudlock, partners, industrial agency, Knight Frank.

The letting to a so far unnamed occupier comes hot on the heels of two significant year lettings of a 138,027sqft building at Doxford Park, Sunderland, being marketed by Knight Frank to Nissan supplier Calsonic Kansei and the Coveris Rigid acquisition of the 266,885 sq ft Drum One building, Chester le Street, giving the sector a huge end-of-year lift.

Against this background, Mr Haggie said it is difficult to predict what this year holds in store.

He added: “The major proposal for land release in the region is by the combined authorities of Sunderland and South Tyneside for an area of circa 320 acres lying immediately to the north of the Nissan Plant in Washington.

“As the land is designated as green belt it will need to satisfy the rigours of the planning system and is therefore unlikely to come forward for another two to three years.

“In due course it will provide a much-needed supply in the area.”

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