Working in the private sector has been tough going for contractors in recent years and the industrial market is no exception.
After enduring heavy declines in the volume of work in 2008 and 2009, the sector now appears to be growing again but the nature of the work on offer has changed.
Contractors should not expect to see developers building speculatively in high volumes as they did during the boom years before the onset of the global financial crisis.
It is more likely that developer’s projects will be dictated by the requirements of future tenants and customers - such as supermarkets and other retailers - also known as built-to-suit.
Standard Life Investments head of UK development James Stevens says that projects are now being driven by the bespoke needs of these occupiers rather than trying to develop a mass market product.
“There will be speculative on a smaller scale with small units in core locations but we won’t see speculative development of huge distribution centres. Some investment houses still have an overspill from the last cycling.
“Unless there is a change to the rating the cost of holding them vacant are astronomical. I don’t see that market coming back for a long time,” he says.
Mr Stevens adds that there was no one region seemed to be providing more development opportunities than others.
He says that as a result of changes in the market competition has increased among contractors, pricing has become more aggressive and the quality of their bids has improved.
“There is a lot more competition for all sizes of projects where previously some people would rule themselves out,” he says. “When the market was very hot people were looking for lowest price looking to get it built as soon as possible.”
Savills industrial agency and development director Toby Green says that speculative industrial development is not non-existent citing the completion of the first phase at Amersham Commercial Park, which offers a range of units from 850 sq m to 7,500 sq m.
“The reality is there’s more possibility of there being speculative development the smaller and smaller you go,” he explains.
Mr Green adds that multi-unit schemes, with units of around 3,000 sq m and under, are the kind of projects developers will build in the current market.
However this, as always, depends on the level of demand and Mr Green says that London, the South east and West Midlands have growth potential particularly in confined urban areas such as Park Royal in West London.
“In certain areas there is a very limited amount of stock, therefore there is a strong case for speculative development,” he says.
Interview: Maurice Dalton
Collaborating with supply chains is often talked about by public sector clients but something that is rarely mentioned in the private sector.
In a market where developers are predominately working on built-to-suit projects for clients rather speculative schemes, Prologis is working more closely with its contractors in a number of ways.
“We’re looking at early contractor involvement particularly on infrastructure projects where we are dealing with third parties like the Highways Agency,” explains, Maurice Dalton, Prologis’ senior vice president of construction & procurement in the UK.
While this means that the developer loses some elements of competition from its tender process it allows Prologis to deliver industrial schemes with complex infrastructure more easily.
Mr Dalton stresses that this system is still being developed and is not necessarily a permanent method. “If we think we’re not getting best value then we’ll go back (to old system of tendering),” he says.
Prologis, which builds industrial units of 10,000 sq m and above, has term agreements with several contractors - including VolkerFitzpatrick and Bowmer&Kirkland.
“We have stuck with our supply chain whilst it’s been tough and values and volumes are certainly significantly down from the peak. We’re getting very competitive tenders from these guys and we’re getting reliability. Those guys worked with us and peak times and have not let us down,” says Mr Dalton.
He adds that this fixed supply chain also allows Prologis to develop bespoke products to clients’ needs as well as sustainable criteria.
“It’s not a closed shop and there will be instances to go outside that group but not in a hurry. “The tap was turned off in speculative building but that’s not to say there won’t be once confidence returns,” he says.
Firms wake up to waste of replacing says Plastic Surgeon
When working onsite, damages to surfaces are inevitable and even more so when working on large-scale industrial projects. Replacing these damaged surfaces is not always practical either in terms of cost or time, and can actually be wasteful.
Specialist finishing contractor Plastic Surgeon has worked with leading construction companies to provide snagging and specialist finishing to surfaces from Perspex doors to wall cladding, stone, brick and laminates.
At the Link 62 Data Centre for Laing O’Rourke, Plastic Surgeon managed a £250,000 project to re-finish wall cladding in a warehouse the size of 12 football pitches, requiring multiple finishers on shift work patterns, seven days a week. According to the company this produced a landfill saving of 10.5 tonnes.
Plastic Surgeon MD Rob Mouser says the industry needs to be more aware of how wasteful replacing can be. “Finally procurement managers and departments are recognising the whole life cost of buildings and are looking at repair options. Budgets dictate you can’t keep replacing things when it’s not necessary,” says Mr Mouser.
Other industrial projects the company has been involved in include repairing and colour matching the cut edges across 6,000 linear metres of glass reinforced concrete cladding panels on a 14 storey property in London and the repair of Perspex doors for BAM Construct that were vandalised just before the completion of the project. In this instance, Plastic Surgeon says its repair work saved the client £4,000 in replacement costs.
The company has also developed a reporting system, VisibiliTy, that enables customers to download repair data, including number of repairs carried out and items saved. The system enables clients to view exactly what weight of building materials or components have been saved from going to landfill, says Plastic Surgeon.
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Industrial statistics analysis (see table, graph and pie chart)
The industrial sector has been in the doldrums since the global recession hit in 2008. From the second quarter of 2008 the UK’s manufacturing sector saw six consecutive quarters of declining output.
As a result there has been very little demand for new industrial buildings particularly given an oversupply of new space that was built speculatively by developers in the boom times before the economic crisis. The sector also failed to follow the general trend of recovery seen in other areas of privately funded construction.
Business intelligence unit Glenigan expects 2011 to be the year that industrial finally sees a recovery given the growth seen in the manufacturing industry and the increases in planning approvals over the last 12 months. It is forecasting that the underlying value of starts on site in the sector to soar to £637 million [CHECK – RE] in Q3 2011 – nearly three times the value of starts in the same period in 2010.
Most regions have gained a share of this year’s increasing workloads. The West Midlands, Scotland and the South east have all seen in excess of £100m of work start on site in 2011. Northern Ireland and Wales have seen the least industrial work start on site this year with just £5m and £18m respectively.
Roll call: who you need to know
Prologis works with retailers, manufacturers and third party logistics operators globally. The company owns and manages 20 million square feet of industrial space in prime locations across the country.
Key contact: Senior vice president Maurice Dalton
Gazeley is operational in the UK, Europe, the Middle East and China. It provides warehouse and distribution buildings for companies including Asda, Walmart, Tesco, John Lewis, Procter and Gamble and DHL.
Key contact: Operations director UK Alex Verbeek
Prominent developer across 10 European countries. It has a customer base of over 1,900 companies from small and medium sized enterprises to global corporations. Owns some of the largest industrial estates in the UK including Slough Trading Estate, Heywood Distribution Park in Manchester, and Premier Park in Park Royal.
Key contact: Development director John Thompson