LOGISTICS PROPERTY TODAY - King Sturge

www.kingsturge.com
LOGISTICS
PROPERTY TODAY
Welcome to the autumn 2006 edition of
Logistics Property Today.
This bulletin focuses on national trends in the logistics property
market across Great Britain. As well as providing a top level
overview of the market in terms of take-up, supply, rents and
land values, Logistics Property Today also provides more detailed
analysis of the market in terms of regional trends, market activity
by sector and developer, and trends in the size of logistics facilities
being taken up.
Our cover story focuses on funding within the UK logistics market.
With the weight of money entering
the industrial and distribution sector
showing no signs of abatement, it is
no surprise that many investors are
seeking alternative routes to place
funds into the market. One such
route is the funding of speculative
development. Indeed, with investment
yields at an all-time low, the additional
returns from taking some speculative
risk are looking more attractive by the
day.
Interestingly, it is not the traditional
“profit erosion” structures that are
proving attractive to investors but
rather structures that give investors
greater exposure to the associated
letting risks and a greater share of the
developer’s profit. This arrangement
also seems to suit the majority of
developers as the funder is essentially
carrying the burden of risk, allowing
the developer to focus on procuring
the building.
Over the past two years, King Sturge
has successfully acted for either the
developer or funder in speculative
transactions totalling in excess of
278,709 m² (3 million ft²). Unit sizes
have ranged from multi-unit schemes
of 465 m² (5,000 ft²) to large-scale
high-bay distribution facilities up to
69,677 m² (750,000 ft²). In the majority
of cases, the buildings were subject
to either limited rental guarantees or
were transacted on a straight vacant
possession basis. Critically, in each
case, the deal was supported by a
strong occupational argument, an
essential ingredient to any speculative
transaction.
Examples of recent transactions
include:
• The forward sale of a 69,677 m²
(750,000 ft²) high-bay distribution
unit known as Nimbus Park, Thorne,
Doncaster.
• The forward acquisition of a
44,129 m² (475,000 ft²) warehouse
known as Galaxy, situated within
the Knowlsey Industrial Estate,
Merseyside.
• The forward sale of a 28,800 m²
(310,000 ft²) high-bay distribution
unit known as Merlin 310 at Trafford
Park, Manchester.
• The forward acquisition of a
19,324 m² (208,000 ft²) warehouse
known as Fusion, at Trafford Park.
• The forward sale of a 20,439 m²
(220,000 ft²) high-bay distribution
unit known as Alpha Plus at St
Neots, Cambridgeshire.
Employment in Logistics - a skills shortage? (See page 2)
Autumn 2006
Do developers need tenants?
• The forward acquisition of a
19,045 m² (205,000 ft²) warehouse
Foxbridge Way, Normanton,
Yorkshire.
• The freehold sale of a 16,537 m 2
(177,900 ft 2 ) high-bay distribution
unit, Magnum 25, Waltham Cross.
As the volume of speculative
development continues, in part fuelled
by continued investor demand, the
number of suitable sites in prime
locations is diminishing. The result is
that land values in such locations are
increasing to levels that can no longer
support such deals. Accordingly, the
speculative focus is shifting towards
less “well trodden” locations where
land values are lower and occupier
demand is emerging.
In conclusion, speculative industrial
and distribution development is
very much alive and, as long as the
occupational market is right and the
entry price is correct, such deals can
represent a win/win situation for all
concerned.
For further information contact Allan
Wilson 0161 238 6214. n

Employment in Logistics Industry – a skills shortage?
Table 1 Employees of working age in UK logistics
Logistics – a major source of
employment
Logistics activities support around 1.73
million employee jobs in the UK, according
to Skills for Logistics, the Sector Skills
Council for freight logistics. This estimate
is based on official data derived from the
Annual Population Survey (APS) using
selective Standard Industrial Classifications
to capture relevant logistics industries and
Standard Occupational Classifications to
capture appropriate logistics occupations.
This means that logistics accounts for
some 7% of all employees of working age
in the UK. Table 1 provide a breakdown of
employees of working age in logistics in the
UK.
Large warehouses can generate a
significant numbers of jobs and a variety
of employment opportunities, so the
availability of labour and its quality have
become increasingly important location
factors for occupiers, in addition to
traditional location criteria such as proximity
to motorways
Driver shortages continue
Skills for Logistics estimates that there
is currently a significant shortage of LGV
drivers in the UK, although this shortage
is not as great as had previously been
anticipated. It conducted a Survey of
employers of LGV drivers last year which
questioned some 1,200 companies in the
UK. Companies indicated an 8% shortfall
of drivers, which approximates to 25,000
drivers if applied to the whole UK. After
factoring in various assumptions, such as
new recruits, military and foreign sources
of labour, SfL predicts that there could be
a shortage of approximately 15,000 LGV
drivers in the UK Logistics industry by the
middle of the 2006/07 financial year. It also
found that the recruitment of new drivers
Employment on
logistics role
SOC Definition Logistics
‘sector’*
9149 Other goods handling & storage
occupations
Other
sectors
Total in Logistics
sector and related
roles
Number %
110,800 267,300 378,100 22%
8211 Heavy good vehicle drivers 169,200 135,100 304,300 18%
9211 Post worker, mail sorter, messenger or
courier
174,200 41,400 215,600 12%
8212 Van drivers 59,800 144,800 204,600 12%
1161 Transport and distribution managers 36,600 46,700 83,300 5%
1162 Storage and warehouse managers 13,400 60,000 73,400 4%
4134 Transport and distribution clerks 21,000 38,900 59,900 3%
Other occupations 411,800 411,800 24%
Total 996,800 1,731,000
Source: Skills for Logistics, based on APS 2005
*Logistics sector defined in terms of selective Standard Industrial Classifications
was perceived as either ‘very difficult’ or
‘difficult’ by nearly half of al employers.
The shortage of drivers reflects a number
of key factors. First, there is evidence
that the ageing workforce is a problem
contributing to labour shortage amongst
LGV drivers but this is not conclusive.
Official statistics (APS 2005) indicate that
nearly a quarter of drivers were aged 55 or
over. However the Survey of employers of
LGV drivers (2005) by SfL estimate this to
be around 16%.
Second, it is clear that the industry is not
attracting enough young people. Official
statistics (Labour Market Intelligence)
indicate that only 3.1% of the industry
is under the age of 25. School leavers
cannot join the industry without significant
delay, due to the minimum age for gaining
a category C+E licence being 21. Many
firms will only accept employees aged 25
or over, for insurance reasons. An additional
problem seems to be that companies prefer
to recruit drivers from other companies
rather than investing in training. According
to the SfL Survey, employers recruit 64%
of their drivers from other companies.
Trainees represented only 16% of the
workforce.
Third, the industry still has a poor image
which is problematic for attracting new
recruits. There is a general perception of
low pay, long hours, stressful conditions,
poor working environment, heavy
supervision and poor career prospects.
Traditionally, lorry drivers tend to be white,
middle aged men. Official statistics indicate
that only 0.4% of LGV drivers are female.
This is something that SfL is beginning to
address. SfL, together with the FTA have
just hosted the second Women in Transport
event aimed at highlighting gender issues
in the industry. Higher numbers of female
recruits in the future could be a means to
avert a future skills shortage.
Is foreign labour filling the gap?
The prediction by SfL of 15,000 LGV drivers
by the middle of 2006/07 financial year is
much lower than anticipated two years
ago when it was forecast at 46,000. This
is partly due to the effects of the Road
Transport Directive not being as severe as
predicted, but can also be explained by an
influx of foreign drivers following the EU
expansion in 2004.
Some firms believe that the shortage of
LGV drivers will be remedied by utilising
foreign labour, particularly from eastern
Europe. In May 2004 Poland and seven
other mainly former communist states
joined the European Union. By June this
year a total of 447,000 eastern Europeans
had registered to work in Britain. Most
(an estimated 264,000) have come from
Poland.
This may not prove a long term solution as
there is already evidence of a downward
trend in the numbers, 57,000 who
registered between April and June last year
down to 52,195 this year. The Workers’
Registration Scheme figures published
in August 2006 show that 49% were in
temporary jobs, suggesting that they were
likely to go back within two or three years.
Recruitment of eastern European
drivers could in the future create a skills
shortage in central and eastern Europe,
which are seeing considerable growth in
warehousing.
The government has announced that when
Bulgaria and Romania join the EU next
year there will be strict limitations to work
permits imposed, with low-skilled workers
only allowed to work in the food processing
and agricultural sectors, so the positive
effects of foreign labour migration may
prove short lived.
The shortage of LGV drivers in the UK
logistics industry, although less than half of
what was estimated two years ago should
nevertheless not be underestimated.
The impact of a foreign labour influx from
expansion of the EU has helped mitigate
the shortage, but may prove short lived as
large numbers of people begin to return to
their country of origin over the next two to
four years. The industry needs to find ways
to address certain problems such as the
image of the industry, recruitment of young
drivers and retaining current drivers.

NEWS & STORIES
DC2, South Marston Park, Swindon
DC2 is the largest existing speculative distribution
development in the South West. King Sturge is acting
as joint agent. Developed by ProLogis, it provides
approximately 28,056 m² (302,000 ft²).
South Marston Park is situated just 5 miles north
of junction 15 of the M4 and accessed off the dual
carriageway A419. It is ideally situated for access to
London, the Midlands and the South West.
For further information contact Tim Johnson on 020
7087 5300 or Giles Weir 01793 553 976. n
Galaxy, Knowsley
King Sturge is joint letting agent for Galaxy, a recently
completed 44,129 m² (475,000 ft²) speculative
distribution facility on Knowsley Industrial Park, located
close to junctions 4 and 5 of the M57.
Developed by Patrick Properties in partnership with
LNC, the development comprises a new manufacturing/
warehouse facility of 43,264 m² (465,692 ft²) plus twostorey
offices of 971 m² (10,452 ft²).
For further information contact David Brooks 0161 238
6239 or Alastair Newman 0151 242 6601. n
Merlin 310, Trafford Park, Manchester
This is a 28,800 m² (310,000 ft²) warehouse currently
under construction with completion due in February
2007. The scheme is stategically located close to
Junction 9 of the M60. It is being developed by
Quorum Developments and funded by Morley Fund
Management. King Sturge is joint agent.
For further information contact Steve Johnson 0161 238
6238. n
Lymedale 414 at Lymedale Cross,
Newcastle-under-Lyme
Being developed by HelioSlough, this is a new
speculative high-bay distribution unit of 38,461 m 2
(414,000 ft 2 ) currently under construction. King Sturge
is acting as joint letting agent. The property is situated
in a strategic location with direct access off the A34
providing swift access to junctions 15 and 16 of the M6.
For further information contact Steve Johnson on 0161
238 6238. n
OCCUPIER DEMAND
The national picture
In the first nine months of 2006 some 1,066,809 m² (11,483,036 ft²) was taken up in 37
new distribution units across Britain (of 10,000 m² and over). This has already overtaken the
10-year annual average of 1.0 million m² (10,763,910 ft²). We expect the level of take-up in
2006 to exceed the total for last year, which reached 1.1 million m².
Take-up of new logistics facilities of 10,000 m 2 and over in GB
m 2
1800000
1600000
1400000
1200000
1000000
800000
600000
400000
200000
0
1996
Source: King Sturge
1997
1998
1999
2000
2001
2002
2003
2004 2005 2006
end Q3
0
Floorspace No. of occupier transactions
The amount of speculative development has continued to rise to unprecedented levels in
2006. This increase in speculative stock has correspondingly led to a rise in the amount
of speculatively developed space taken up, which, at end Q3 2006, stood at 43.5% of all
floorspace. This is a record figure and has almost doubled from September 2005 when it stood
at 21.8%. This compares with an annual average trend of 11.6% over the past 10 years.
Regions
In the first three quarters of 2006, the largest percentage of take-up of units over 10,000 m²
took place in the East and West Midlands, together representing 36.4% of the total floorspace
transacted, which was lower than the 1996 level of 43.8%. The West Midlands take-up was
18.5% and the East Midlands was 17.9%. Following the Midlands, the next largest region
was the South East/East (including London), which took a share of 29.4%, up from 14.2% in
1996. However, 10.8% of this increase can be accounted for by the IKEA transaction at Bury
St Edmunds, where IKEA has secured planning consent for 114,896 m² (1,236,730 ft²). At Q3
2006 the share of take-up in Yorkshire and Humberside was 11.9%, compared to zero in 1996.
Scotland had also shown a marked increase, with 1.8% of recorded transactions there in 1996,
but by end Q3 2006 it stood at 8.3% of the market. There has been a notable decrease in the
share of transactions of logistics facilities over 10,000 m² in the North West, which has declined
from the 1996 level of 23.5% to 10.5% at September 2006.
Regional take-up of new logistics facilities of 10,000 m 2 and over in GB
0.0%
23.5%
28.3%
0.0%
1.8%
Source: King Sturge
1996 2006 end Q3
14.2%
15.5%
16.7%
11.9%
10.5%
3.5%
17.9%
8.3%
29.4%
18.5%
0.0%
80
70
60
50
40
30
20
10
Transactions
South East/East (incl. London)
South West & Wales
West Midlands
East Midlands
Yorkshire & Humber
North East
North West
Scotland

NEWS & STORIES
Fusion at Trafford Park, Manchester
Fusion at Trafford Park, Manchester, is a new high-bay
warehouse facility developed by CDP and funded by
Legal & General, available to let through King Sturge.
Fusion is located in the heart of Trafford Park at the
Europa Gate roundabout, which links Westinghouse
Road with Europa Way and John Gilbert Way. Electric
Park has already attracted the national distribution
centres for Kellogg’s, L’Oreal and Associated British
Foods, highlighting the strength of this location. The
accommodation comprises a warehouse of 18,580 m²
(200,000 ft²) and a two-storey office of743 m² (8,000 ft²).
The warehouse consists of a 15m eaves height and has
16 dock and three level access loading doors.
For further information contact David Brooks 0161 238
6239. n
ProLogis Park, Stafford
Two new distribution warehouses remain available to let
through King Sturge. The available units are:
DC1 (Crossflow 540): 50,675 m 2 (545,470 ft 2 ) (has
recently been let to Screwfix Direct);
DC2: 11,877 m 2 (127,845 ft 2 ) ;
DC3: 6,528 m 2 (70,270 ft 2 ).
These three buildings represent Phase 1 of the
development. Phase 2 (likely to complete in summer
2007) will comprise 21,368 m 2 (230,000 ft 2 ). Positioned
at junction 14 of the M6, ProLogis Park, Stafford
is strategically located in the central M6 corridor.
Birmingham is 28 miles to the south and Manchester is
58 miles to the north.
For further information contact Carl Durant or Steve
Johnson: 0121 200 7147 or 0161 238 6238 respectively.
n
M400 Heywood Distribution Park,
Manchester
Planning consent has been obtained by Slough Estates
for up to 37,161 m 2 (400,000 ft 2 ) in a single building as
a design and build opportunity. King Sturge is jointly
marketing the opportunity.
For further information contact David Brooks 0161 238
6239. n
Sectors
The non-food retail sector has been the dominant sector in the take-up of new units over
10,000 m², accounting for 39.2% to Q3 2006. This compares with a share of 23.4% from
the amount taken up in 2005.
The rest of the floorspace was distributed relatively evenly among logistics companies,
manufacturers, and food retailers, which took up 19.1%, 17.5% and 16.7% respectively,
with “others” accounting for 7.4%.
Take-up of new logistics facilities of 10,000 m 2 and over by sector
%
100
90
80
70
60
50
40
30
20
10
0
2001
Source: King Sturge
2002
Non-food retailers
2003
2004
Food Retailer
2005
2006
end Q3
Other Manufacturer Logistics company
Size analysis
The average size of units over 10,000 m² taken up in new logistics facilities has picked up
again in 2006 following a dip in 2005. At the end of Q3 2006 it stood at its highest level in
10 years at 28,833 m² (310,355 ft²), compared with 21,203 m² (228,227 ft²) in 1996.
Average size of unit taken-up in new logistics facilities of 10,000 m 2 and over
m 2
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
1996
Source: King Sturge
1997
1998
1999
2000
Trend line
2001
2002
2003
2004
2005 2006
end Q3

NEWS & STORIES
Big Sam, Wingates Industrial Estate,
Bolton
King Sturge has acquired Big Sam for Handleman UK
. This is a 25,520 m 2 (274,700 ft 2 ) speculative high-bay
warehouse developed by Barwood and Arlington.
The 25,520 m 2 (274,700 ft 2 ) unit includes cross-docking
facilities with eight dock levellers and four level access
doors on each side with a 14m clear headroom.
For further information contact David Brooks 0161 238
6239. n
Wynard 360, Wynard Park, Tees Valley
King Sturge is currently marketing this 35,303 m 2
(300,000 ft 2 ) warehouse which has recently completed
and is now available to let. The developer is HelioSlough.
For further information contact Simon Hill 0191 279
0006. n
Nimbus Park, Thorne, Doncaster
King Sturge is acting as joint agent for developer
HelioSlough to market the UK’s largest speculative
logistics scheme - a 69,677 m 2 (750,000 ft 2 ) warehousing
and distribution complex on a 60 acre site at Thorne,
Doncaster, adjacent to the M18 at junction 6, around 8
miles to the north-east of Doncaster town centre.
Construction work on the development is underway and
on target for completion before the end of the year.
A single user is being sought by King Sturge at a rent of
£4.75 per ft 2 .
Phase 1 will include 92 dock-level entry doors, 113
dedicated trailer parking spaces, three-storey offices, a
gatehouse-controlled entrance, HGV vehicle wash and
refuelling facilities. A dedicated railway siding could
also be incorporated to the development to facilitate rail
freight transport from the Doncaster-Hull line.
For further information contact Richard Harris 0113 235
5249. n
Units 5010 and 5020 G Park, Western
Approach, Bristol
This is the largest proposed speculative scheme in the
Bristol area, totalling over 29,729 m 2 (320,000 ft 2 ) in
two buildings of 10,916 m 2 (117,500 ft 2 ) and 19,045 m 2
(205,000 ft 2 ). Planning has been secured and a start is
due on site in January. The developer is Gazeley, funded
by Hermes. King Sturge is joint agent.
For further information contact Paul Baker 0117 930. n
SUPPLY
Speculative development
The level of new speculatively built logistics space available in new units over 10,000 m²
has continued to increase in 2006. There were 67 units either immediately available or
under construction at the end of Q3 2006, accounting for 1.57 million m² (16,899,339 ft²) of
floorspace, compared with 1.25 million m² (13,454,888 ft²) in the same period a year ago,
representing an increase of 26%.
One noticeable change from one year ago was in units in the band 25,000 m² to
49,999 m². The number of units available/under construction doubled from 9 to 18 and in
terms of space represented a 96.2% increase in floorspace.
Available* logistics facilities of 10,000 m² and over, end-September 2006
Size band No. of units Total floorspace (m²)
10,000 to 24,999 m² 44 672,451
25,000 to 49,999 m² 18 602,652
50,000 m² and over 5 296,904
Total 59 1,572,007
* Available schemes comprise newly completed buildings and units under construction
Of available space at end-September 2006 ProLogis held the largest share at 18% of total
available floorspace. Other major developers such as Gladman, Gazeley and Rosemound
accounted for 12%, 11% and 8% respectively.
Land supply and land values
Six of the 10 regions listed in the table below have shown significant uplift in land values
over the last 12 months. This is an indicator of the limited supply of good quality logistics
stock in Britain.
As reported in the spring issue of Logistics Property Today, Scotland has seen the largest
increase in land values over the last year, rising from £200,000 to £300,000 per acre,
representing an increase of 50%.
The East Midlands has seen significant growth in land values over the past year, up from
£350,000 to £450,000 per acre (28.6%). Land values have also notably increased in the
North West, from £300,000 to £350,000 per acre (16.7%) and in the South West, from
£350,000 to £400,000 per acre (14.3%), with the South East (excluding Heathrow) and
Wales showing smaller increases of 13.6% and 12.5% respectively.
The West Midlands, East Anglia, Yorkshire and Humberside and the North East have shown
no change in logistics land values over the past year.
Logistics Land Values, September 2006
Region £ per acre
South East (excl. Heathrow) 850,000-1,100,000
West Midlands 500,000
East Anglia 300,000-400,000
South West 300,000-400,000
East Midlands 250,000-450,000
North West 250,000-350,000
Yorkshire & Humberside 200,000-250,000
Scotland 150,000-300,000
Wales 200,000-225,000
North East 100,000-150,000
Note: Land values are based on prime locations

RENTS
The South East dominates prime rents for large logistics facilities at £6.50-8.50 per
ft², followed by the West Midlands at £5.75-6.50 per ft². Elsewhere in Britain, prime
rents range from £4.00 - £4.50 per ft² in the North East to £4.75 – 5.50 per ft² in the
South West.
Prime logistics rents
Region £ per ft²
South East (excluding Heathrow) 6.50-8.50
West Midlands 5.75-6.50
East Anglia 5.00-5.50
South West 4.75-5.50
East Midlands 4.50-5.25
North West 4.25-4.75
Yorkshire & Humberside 4.25-4.50
Scotland 5.25-5.75
Wales 4.25-4.50
North East 4.00-4.50
Note: Based on a minimum ten-year lease
INVESTMENT COMMENT
There continues to be strong investor demand for large distribution facilities. As a result
the downward pressure on yields has continued. Prime yields are around 5.5% or better,
assuming a 15-year lease, with yields between 6.0% and 6.5% for five-year income.
Evidence of 10-year income includes the sale of TNT at Magna Park, Lutterworth.
Pickering Properties acquired this unit of 229,213 ft² by way of a forward commitment
for £23.1m, equating to 5.3% NIY.
Also at Magna Park, Pickering Properties bought by way of a forward commitment a
unit which will be occupied by Geodis. The lease term agreed is 10 years with a tenant’s
break at year 5. The purchase price equates to 6.12% NIY.
All data contained in this report has been compiled by King Sturge LLP and is published for general information purposes only. While
every effort has been made to ensure the accuracy of the data and other material contained in this report, King Sturge LLP does not
accept any liability (whether in contract, tort or otherwise) to any person for any loss or damage suffered as a result of any errors or
omissions. The information, opinions and forecasts set out in the report should not be relied upon to replace professional advice on
specific matters, and no responsibility for loss occasioned to any person acting, or refraining from acting, as a result of any material in
this publication can be accepted by King Sturge LLP.
© King Sturge LLP November 2006
This publication is printed on recycled, post-consumer fibre, totally chlorine free paper produced from sustainable stock.
FSC certification.
www.kingsturge.com
UK Logistics Team
National
David Brooks – Manchester
Tel: 0161 238 6239
Tim Johnson – London
Tel: 020 7087 5300
Carl Durrant – Midlands
Tel: 0121 200 7147
Jon Sleeman – Research &
Consultancy
Tel: 020 7087 5515
Regional
Jim Frankis – South East
Tel: 020 7087 5311
Andy Harding – South East
Tel: 020 7087 5310
Steven Johnson – North West
Tel: 0161 238 6238
Simon Hill – North East
Tel: 0191 279 0006
Daniel Martin – Yorkshire &
Humberside
Tel: 0113 235 5222
Jeremy Sutton – South West
Tel: 01793 553963
Paul Baker – South West
Tel: 0117 930 5780
Chris Sutton – Wales
Tel: 029 2072 6014
Douglas Patrick – Scotland (West)
Tel: 0141 225 0503
Kirsty Palmer – Scotland (East)
Tel: 0131 247 4702
If you require further information on
this publication, please contact Emma
Jackson in the Research Department
on 020 7087 5518
or by email:
emma.jackson@kingsturge.com