When it comes to speculative development, most attention focuses on the big shed developments, but that’s by no means the whole story as Keith Taylor, our managing director, outlines.
DO YOU remember those adverts for a well-known bank a few years ago with Anthony Hopkins extolling the benefits of his ‘big house, big car, big everything’?
The credit crunch and financial crash which followed soon afterwards punctured that big balloon fairly swiftly, but the urge to talk big, think big and dream big still persists in a wide range of fields.
Take speculative development, for example.
I would imagine that nothing gets the commercial property editorial team at The Journal more energised in their work than the announcement of plans for the latest mega-shed development with 500,000 sq ft now almost the starting point for large-scale schemes, many of them driven by major investors.
Accelerated by the effects of the pandemic on the online retail and logistics sector, the market for large-scale speculative development has boomed over the past year and is expected to continue well into 2022.
Figures show that for units in excess of 50,000 sq ft, an all-time high of 11.5m sq ft of speculative development was under construction at the end of 2020, with a further 13.7m sq ft expected to come forward during this year.
Big numbers for sure. But are these big numbers obscuring something else that’s significant?
From my point of view, the key in those figures above lies in the words “units in excess of 50,000 sq ft”.
What about those smaller than 50,000 sq ft?
Measuring the development of these smaller speculative units poses more challenges for the statisticians – they tend to come with less of a fanfare, they’re less likely to attract column inches and they’re less heavily promoted.
Nevertheless, smaller scale speculative development is on the rise, particularly when it comes to industrial space.
There are a number of good reasons for this.
Firstly, demand: SME manufacturing output grew at the fastest pace on record in the three months to July, according to the CBI’s quarterly SME trends survey. The volume of total new orders increased at the quickest rate on record, reflecting a record rise in domestic orders and the quickest export orders growth since January 2019.
Importantly, employment numbers also grew at the strongest pace on record in the three months to July while business optimism growth remained strong.
At last count, there were over 287,000 manufacturing SMEs in the country – a big number, I’m sure you’ll agree – and all of them needing space to work and grow.
Secondly, there is the nature of the work: while many of us have found it fairly straightforward to work from home (and many believe full-time office work will never be back), industrial and manufacturing businesses need a physical space to operate from.
Thirdly, there is the trickle-down effect: large-scale projects such as the giant Dogger Bank wind farm off the coast of the North-East attract myriad smaller suppliers and partners carrying out work for the larger companies driving the projects, all of whom benefit from being as close to the centre of operations as possible.
Nevertheless, despite these factors, smaller scale speculative development poses its own particular challenges and isn’t for the inexperienced.
For starters, as we have outlined above, smaller developments make less of a big bang and are less immediately attractive to big money investors looking to make a big return in a short space of time. Most sub-50,000 sq ft speculative developments are financed either by existing company capital or by bank funding so you need to be very sure of your market – and your money – before taking the plunge.
Land available for smaller schemes also tends to be of a less straightforward nature than the open expanses of the big shed developments – land remediation work will often need to be carried out and change of use permission sought before a development can go ahead. Also, siting your development near to major arterial routes means that you’ll have a much larger pool of potential occupiers, from final mile delivery to manufacturing processes.
Local knowledge and local relationships should also never be underestimated for a number of reasons: if you are tapped into the local area, you will be more likely to know what land will be available and when before your competitors do. Good relationships with local authorities mean that you will understand better what kind of schemes will and won’t work when it comes to planning.
And if you already work with other businesses in the area, you will have a head start when it comes to attracting tenants to your new developments: you’ll know the company who took one of your start-up units two years ago is now bursting at the seams and needs a much bigger place to service that major contract they’ve just won.
It’s this philosophy that has formed the bedrock of our work and has meant we now operate 28 commercial development estates across the North-East.
While we have been busy developing existing sites and working on pre-let and grant-assisted projects, we’re also embarking on our latest industrial speculative development in the region, putting together a 45,000 sq ft development on a site in Gateshead formerly occupied by energy group Npower.
Because unlike Anthony Hopkins, we reckon small(er) is beautiful.