Impact of e-tailing on the property market is ‘fascinating,’ says director at Harworth
Brownfield regeneration and the logistics sector are both “hot markets” at present and the impact that e-tailing is having on the property market is “fascinating,” directors at Harworth Group told more than 100 property professionals on Friday. ‘
TheBusinessDesk.com’s first Sheffield-based Property Professional Lunch was spearheaded by Iain Thomson and Ian Ball, directors at property development firm Harworth Group.
Looking back on a successful 2017, the duo said the firm had 21,000 acres across 135 sites. Thomson, associate director of partnerships and communications, said that given Harworth used to be known for redeveloping old colliery sites and bringing life back to areas in terms of building out commercial and residential developments, it was increasingly replacing its portfolio with other sites including former power stations, factories and also some greenfield development.
Thomson said: “We had a really good year last year and we are quite bullish about that. At Harworth we were able to report another double-digit growth, adding £47.5m value to the business, which means we are out-performing the regeneration market.
“Brownfield regeneration is a hot market at present. For us, there are two particular bits – beds and sheds.”
Ball, executive director of income generation, said the firm had very diverse income streams including institutional portfolios and also very modern developments. He said: “We still do coal, we still do coal mine methane, wind, solar – some ‘quirky’ assets – and they have been rewarding and they take a lot of getting used to as an asset class.”
He said the Advanced Manufacturing Park in Rotherham, which has McLaren and Boeing among its occupiers, was the result of a lot of hard work. Ball said: “We got a lot of support from local LEP and the city region in terms of attracting those occupiers and I think you will appreciate it’s a good win for the region; they bring other occupiers with them.”
He talked about the 52,000 st ft Bolton scheme that Harwoth is leading on as “being one of the best schemes in the North West.” The site was a former surface mine which was re-engineered and attracted occupiers including Aldi, Lidl, Amazon, Whistle; now the firm is heading towards confirming 3m sq ft occupiers at the development.
“To indicate how hot the logistics sector is, on the 52,000 sq ft development, we got to practical completion and the void period was just 13 days. That led to an increase in rent.
“That demonstrates that there is certainly rental growth in the market. This market is very interesting in so far as there is a certain amount of spec development going on.”
He said there were examples of it not going as smoothly on all such developments. Ball said the 75,000 sq ft Gateway 36 development in Barnsley was “more of a challenge.”
The development completed in 2016 and the lettings were finalised earlier this month. “Everyone sings the praises of industrial but there is a demand and supply in-balance. It still comes down to location, location, location,” added Ball.
Thomson said: “We believe there is still strong demand for industrial development estates. This is being driven by E-tailing. Most growth is from companies with an extremely good E-offer.
“We also believe that supply is being squeezed across all regions, including Yorkshire and Humber. Most projections indicate that industrial will outperform retail and office sector. We think that will continue across the market.”
Ball offered an optimistic but more cautious perspective, stating: “I think the e-tailing phenomenon is a very interesting one. Let’s be clear, the retail sector a bit of a blood bath. We talk about winners and winners, but retail seems to have losers and losers; with some winning along the way.
“The face of retailing has changed fundamentally. When you put logistics against that backdrop, charging rents of £5,£6,£7 per sq ft, and retailers offering £30-£60 per sq ft for a retail warehouse you can buy into the argument there is rental growth to come from retail hubs with a logistics base.”
He said while it was all well and good talking about rental inflation, but asked the audience if it was applicable.
Ball added: “When you have prime locations, competing for demand, they cluster around one another. When you get one, you get the other. They tend to follow one another. I’d like to think there is an economic model to that.
“Those yields and rental growths feed through to land values. There are a number of commercial sites where land values have been ‘fruity’ – how sustainable they are is open for discussion.
“That said, there is no doubt that E-tailing is here to stay; it will evolve. In terms of logistics, there has never been a shortage of industrial land. The market can very quickly react to demand and supply. You get hotspots in locations linked to connectivity and chimney pots.”
It is his belief that business models around regional distribution centre, hubs and spokes will continue to work well and keep the industrial and commercial property markets busy.
He added: “It’s a fascinating market. Whether it’s tied into the property market showing signs of exuberance, I think only time will tell.”
Thomson talked of the need to deliver more residential schemes to help fill the house shortage in the UK. He said: “There is strong demand for housebuilders across sites across the UK. Waverley, for example, will deliver 4,000 homes – building has been taking place for five years. We are delivering 1/5 of new homes in Rotherham.
“This shows that if you get the fundamentals right, volume housebuilders will be interested.”
Thomson said the largest projected growth in houses prices was across the north. “I think this is indicative of a flight of capital from the South East and a hunting for value across different parts of the UK. This is good news given our portfolio is predominantly in the north.”
He added that there had been a lot more interest from investors in PRS principal sites in Sheffield. Thomson said: “They are starting to realise there is an untapped market but I think would take time to see those in our portfolio but it could happen given the adjustments in the market seeing more people rent.”
Harworth has an ongoing confidence in the market, which is driven by an already healthy start to 2018. Thomson said: “There are two reasons we are hopeful about 2018. One is that 50% of sales, both commercial and residential, are on track within the entire portfolio in 2018. We are also planning two large schemes.
“Secondly, we completed £30m acquisitions last year. We are looking to make £45m-£50m this year to refill the strategic landbank.”
The firm’s biggest market is Yorkshire and Humber, and in the next two years plans to deliver 2,500 residential units and 5m sq ft of commercial space across 15 sites, with outline expected to be in place for 12 of those over the next year.
He added that Harworth projected £35m sales, across 20 site sales, to residential and commercial customers in 2018.
