Q & A with James Hill

Industrial and Logistics property has become the unabashed hero of the commercial property sector in recent years as a surge in internet retail continues and High Street fortunes decline. Northamptonshire has been prime shed territory for decades and is again at the top of the headlines.

All Things Business spoke to James Hill, Director of Industrial and Logistics at Lambert Smith Hampton’s Northampton office to discuss this regional success story and find out what the underlying influencing factors are.

James Hill, Director of Industrial  and Logistics at  Lambert Smith Hampton
James Hill, Director of Industrial and Logistics at Lambert Smith Hampton

Northamptonshire has long been a logistics hotspot, but what is its national context?

As a region we’re at the top of the league. The largest single storey logistics deal agreed in the UK last year was in Corby, where LSH negotiated terms for BSH Home Appliances for a new purpose built national distribution centre and customer service hub. At 945,375 sq ft it is classed as a ‘mega shed’ and is part of a growing group of buildings across the UK of over 500,000 sq ft. In 2018 the East Midlands saw the highest level of take up of space of any area in the UK at 14.6M sq ft. Of this 10M sq ft was in the logistics sector, buildings over 100,000 sq ft, representing a 93% increase on 2017 and a 48% increase on the five year average.

So LSH works on behalf of occupiers of buildings as well as owners?

We have a team of three Chartered Surveyors in Northampton focused on industrial but a total of 10 agents across the wider midlands area. Probably 50% of our work is on behalf of occupiers and although this activity is often less visible from outside the business, we deliver a whole range of services to occupiers of industrial buildings. I mentioned BSH Home Appliances earlier which was a 24 month project beginning with an audit of the space they occupied set against their business plan for the forthcoming period. This led us eventually to the acquisition of the facility in Corby which is under construction and due to complete in September. Initially it will employ over 300 local people in a range of roles from transport office and dispatch to customer service, parts and engineering. As an LSH team we designed the building to their specific operational requirements and we are now monitoring the construction and project managing the fit out.

We also act for Hermes Parcelnet on a national basis and acquired their new facility at Rugby Gateway as well as other space more recently in Nottingham. We are currently working on a requirement they have in the Yorkshire area.

There seem to be large warehouses popping up everywhere. Where does the need for all of this floor space come from?

The obvious reason for this is the rise of e-commerce, responsible for 18% of total retail sales last year and forecast to rise to 22% by 2022.

In the past six years UK parcel deliveries have doubled, requiring three times as much big box industrial space for online fulfillment.

Spikes in demand are particularly challenging. Online retail sales during Black Friday week have increased from 33% in 2014 to 61% of total retail sales in 2018. This is driving more retailers to automation, which can also help with another perennial retail challenge – dealing with customer returns.

LSH is handling a number of prime schemes across the area including Cransley Park, Kettering. The five unit development is nearing completion and already has names against buildings, which are available for sale or to let. Aviva Investors are also developing 58,000 sq ft at Swan Valley, an impressive specification and unrivaled working environment ready to occupy in Q4 this year. There will then follow a further 90,000 – 120,000 sq ft of warehouse space at Swan Valley, as well as a new and exciting facility for Sytner Group.

How has the design of buildings needed to adapt to changing business patterns?

Since the emergence in the 1980’s of the ‘modern’ warehouse the visible changes to most of us in the intervening period have been the average size of buildings both in terms of floor area and height. Warehousing is generally a volume business where racking is used to store palletised goods. Logistics units now commonly have an internal height of 15m, but the next generation will be higher still as occupiers demand greater efficiency through use of a buildings volume.

Increasing use of automation is another new characteristic. Robotic picking and packing as well as automated racking systems, garment handling systems and returns processing are all on the rise. This has the effect of increasing the power required to run today’s facilities, something of a problem when the national electricity network is under pressure.

Location requirements have changed too. Proximity to suitable and adequate population centres becomes more important in a high employment economy, whilst proximity to customers is now of equal importance for speed of delivery.

What impact has Brexit had on all of this and what lies ahead in the sector for 2019?

I suppose we needed to discuss Brexit at some point! Part of 2018’s takeup was certainly due to the challenges that Brexit presents to supply chains. In fact, for units over 250,000 sq ft, annual take-up increased by around 42%.

Still, the final UK position is no clearer and there is still a risk of crashing out of the EU on WTO terms.

Lack of clarity has led many occupiers to stockpile products in additional facilities or increase existing volumes within current facilities. This is perfectly rational. Research has shown that a four-minute delay at Dover, which accounts for 30% of food imports from the EU, could potentially lead to a five-hour queue in the retail supply chain.

This scenario can be overlaid onto almost any sector of our economy from manufacturing, food and construction to retail more generally. Our reliance as a nation on imports has been finessed over years to operate on an almost just in time basis.

Brexit aside, it is clear that investment fundamentals remain attractive and compelling for the logistics subsector, with continuous strong occupational demand and a supply-demand imbalance for bigger and bigger units.

Northamptonshire will benefit from just approximately 1M sqft of speculative industrial/logistics development in 2019, and this feeds in to a UK wide speculative industrial pipeline of 12M sq ft in 2019. We see demand as stead in the face of a problematic political backdrop but with economic metrics still positive and the continuing rationalization in the retail v online sectors we do not see the market dimming.

For more information visit www.lsh.co.uk