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JLL IN THE NEWS

Spec shed development: linking big

ESTATES GAZETTE


​Is there such a thing as an institutional specification for big sheds any more? Richard Evans, director, industrial and logistics at JLL, is not so sure. “I think specification is now the biggest challenge for warehouse developers who are trying to balance development without cutting corners,” he says. “There is a clear risk with spec development that if you misread the market you overdevelop the scheme’s size or specification – or both. The results of this mean your void rate could increase, or your income flow might be less.” Mindful of this, logistics developers have, since the recession, taken a measured approach to speculatively putting up new buildings, with the result that supply has been contained and void rates have been relatively low – the average rate coming in at just over six months. With developers having generally avoided the pitfalls of the rampant speculative building of the boom years it would be surprising if the mood suddenly shifted now, but Evans reports a prevailing feeling that constructing speculatively is still worthwhile as long as the fundamentals are sound. “It can often be cheaper to spec develop because you are working to a template, especially where you have two or three projects on the go – so you can be more efficient but balance against the risk of voids. It is also a good way to pump prime a larger site to get your location noticed.” Evans tips Prologis as a key player likely to bring more stock forward on a speculative basis, such as the 250,000 sq ft it intends to build next to a unit under construction for DFS at Marston Gate in Milton Keynes. He suggests similar builds may take place on two or three other sites owned by the developer in the Midlands next year.

The EU referendum may have taken a small amount of wind from the sails of the market, but Evans points out that the logistics environment has settled down in a relatively stable way, with a handful of established players. “The majority of property companies and REITs are building long-term for their own portfolio, not just constructing assets to trade. So this will influence the market,” he says. There is still stock being traded on the logistics side, but it is not common for spec stock to be traded once let. Those that build it will hold it. Saying that, industrial funds and REITs’ requirements change all the time.”