The West Midlands continues to be an attractive location for logistics and industrial activities, with strong demand and a diverse occupier base. We caught up with one of our senior associates, Lauren Allcoat, based in our Worcester office, to learn more about the current state of the market, what the region offers different types of occupiers, and learn more about some of the new developments in the area.
How has the regional property market performed in the last year? What factors are dictating this?
The industrial and logistics property market in the West Midlands has generally performed well in the last year, driven by factors such as increased demand for warehouse space due to the rise in e-commerce, distribution, and supply chain activities. The region's strategic location with excellent motorway links, infrastructure improvements, and investment in transportation networks have also contributed to its attractiveness to businesses seeking storage and distribution facilities.
We have seen several tenants seeking expansion space whereby their needs have increased due to rapid growth, however, some of these businesses struggled during Covid and their accounts are not showing as strongly as developers would have liked. This has resulted in higher demands being placed on tenants such as larger deposit sums and personal guarantors.
Spec build commitment has slowed in the last year as a result of inflationary pressures, however, we have still seen a number of these developments coming out of the ground, including St Modwen Park Broomhall, on the outskirts of Worcester, where two new buildings of 31,676 sq ft and 39,997 sq ft, from developer St Modwen Logistics will be available from July; Potter Space, in Droitwich, featuring four buildings from property company Potter Space, two of which have already been built and a further two of 24,000 sq ft and 30,500 sq ft due to PC in December this year and Summer next year respectively; and Hartlebury Trading Estate, in Worcestershire, with one building of 44,552 sq ft being delivered by Schroders due to PC in May this year.
However, while we have seen some developers forging ahead with spec build developments in carefully selected locations close to motorway access where they know there will be demand, others are taking a more cautious approach relying on design and build.
How important is refurbished stock in your area?
Refurbished stock is important across the West Midlands due to the limited amount of new stock and can prove more cost-effective for some tenants who may not be able to afford the higher rents and rates of a newly built unit.
Almost all institutional landlords employ a rolling refurbishment strategy across their estates to future-proof their assets. This is primarily driven by the need to improve Energy Performance Certificate (EPC) ratings across both primary and secondary stock. While legislation dictates this is required to an extent, with the potential for all non-domestic buildings in England and Wales to require an EPC of band B or higher by 2030, it is also being increasingly driven by occupiers who are becoming more conscious of their company’s environmental impact.
There is also a focus on incorporating green technologies such as EV chargers and solar PV to enhance value for landlords to benefit from the continued rental growth that remains prevalent in the market. An example of this is Unit 5 Yorks Park, based in Dudley, which is currently undergoing a full refurbishment by the landlord London Metric.
What type of occupiers are taking space right now? Why?
A wide range of occupiers continue to show activity in the market. In the last 12 months, we have seen retail trade and manufacturing take the most space, both at around 30 per cent respectively. Retail is utilising the space for storage and distribution purposes, while manufacturing is benefiting from the region’s skilled labour pool as the industry has continued its focus to become less reliant on complex overseas supply chains. This is followed by services and wholesale trade which occupied 16 per cent and 12 per cent of space respectively.
To what extent is last-mile logistics affecting demand for property?
Last-mile logistics is significantly impacting the demand for property in the West Midlands, particularly with the rise of e-commerce. The need for distribution centres and warehouses near urban areas has increased, driving up demand for industrial properties.
This is particularly true with larger urban areas such as Birmingham, where occupiers have an increased appetite for closer proximity to chimney pots due to the perceived importance of speed of delivery which can put them at a competitive advantage.
How are sustainability requirements impacting projects and plans?
More occupiers are now considering Environmental Social and Governance (ESG) as a corporate consideration and placing a greater weight of importance on buildings with environmental credentials to ensure that their property is fit for purpose for the future. As a result of this and new legislation which is likely to be introduced stipulating that all non-domestic buildings in England and Wales will require an EPC of band B or higher by 2030, new builds are targeting high EPC ratings and BREEAM excellent as standard, and both new and second-hand refurbished stock is increasingly focused on introducing green technologies such as EV chargers and solar PV.
An example of this is at Hartlebury Trading Estate, in Worcestershire, where the landlord, Schroders are keen to ensure units are sustainable for the future. One building of 44,552 sq ft due to PC in May this year will have solar PV panels on the roof and EV charging points, has a BREEAM rating of very good and an expected EPC rating of band A.
What do you anticipate for the year ahead?
Continued growth and investment are likely in the West Midlands in the year ahead, driven by factors such as e-commerce expansion, infrastructure development, and the region's strategic location to maintain demand in a market where the supply of mid-box space is still constrained. Current market conditions suggest a strong take-up, with a robust first quarter of 2024 in terms of enquiries, and we expect further demand for warehouse space and a continued focus on sustainability initiatives to meet environmental goals.
This could, however, be tempered by cautious decision-making due to political uncertainty around the upcoming election and wider geopolitics. This uncertainty has also resulted in a limited amount of confirmed new spec builds across the region as decision-makers exercise caution. It is anticipated that a reduction in the bank base rate and an earlier-than-expected general election could see a pickup in activity towards the end of the year.
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