The North West
Finding Value for Money in the Shed Market whilst Prioritising ESG and Sustainability Factors
Polaris Portfolio(part) - Victoria Road, Barnoldswick-acquired by Adhan group April 2022
Andrew Richardson Ryden LLP
In an article published 12 months ago, I explored the challenge of finding value for money in the shed market. At the time, we managed to secure a range of different deals from summer 2021 to late summer 2022 before the market turned. The article concluded by suggesting that maybe the time had come to “dust down the papers on those residential sites that didn’t happen”, meaning former industrial sites which suddenly became very valuable shed sites again.
However, 12 months on, as shed site values have halved, I would suggest that both unsold residential and industrial sites should be looked at again whilst development finance is difficult to source. In addition sheds that were overpriced and didn`t sell might be worth consideration especially if there is genuine reversionary growth.
Although the underlying occupier market appears to remain robust, there are some signs of weakness. It won’t take many more administrations of packaging, low margin logistics, manufacturing, or export-related businesses for voids to start appearing. Property refinancing in the 2nd half of the year may also add a little fuel. Then and only then will owners of both sites and buildings start to lower their price aspirations that have been too high for too long.
Pricing on prime logistics has already moved out very quickly from 3.5/4.0% to 5.0% +, where equilibrium has been achieved once again. There is no shortage of equity, with global heavyweights like Blackstone and GLP as well as experienced investors such as Leftfield, buying prime Grade A stock.
It has been interesting to observe UK listed REITS such as London Metric, Warehouse REIT, Urban Logistics, and Tritax quietly selling good quality assets with covenant, location, lease expiry or lease renewal issues over the last six months, often to take advantage of fresh equity from overseas.
However, covenant, location, and sustainability are now more significant drivers than they were 12 months ago, and any weakness will lead to a quick outward price movement. While yields may well move in a shade for the best, prices have to reflect the cost of capital, and future sustainability will become even more relevant.
Unit 2 South Kirkby Business Park; Tenant: Restore Datashred; Modern 29,000 sq ft unit; Acquisition - £3.3m / 5.66%
Pricing on secondary stock still has to move out but this likely to happen as voids appear. Owner-occupiers have often stepped in to buy these buildings, sustaining pricing in some instances, but not everywhere.
Environmental, social, and governance (ESG)/EPC`s were hardly in the headlines 12 months ago, but they are now. Two recent introductions to UK based property companies both prompted an initial response to their EPC rating and the amount of capital expenditure required to future-proof them, in order to ensure an exit to a wide investor audience.
The market is currently quiet as sellers decide whether to sell or reinvest in either Grade A stock or Grade B stock to upgrade, whilst buyers determine what to buy and at what prices. This adjustment period is unlikely to be quick, but it could accelerate if good or bad headlines become more commonplace. In the meantime, it’s a waiting game but ultimately pricing has to reflect the full cost of voids and essential capital expenditure over the business plan.
Fourth Avenue, Trafford Park; Tenant: Evri; Prime single let; Sale - £2.91m / 3.80%-Spring 2022 44
For further information contact, Andrew Richardson Ryden LLP
andrewp.richardson@
ryden.co.uk
COMMERCIAL PROPERTY MONTHLY 2023
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