Really taking off

September 01, 2014 by Kirsty Adams
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David Thame delves into the hotbed that is the logistics scene in the south-east area, where expansion of Heathrow Airport is the key to future development.

Like the passengers now waiting for delayed summer flights, Heathrow Airport itself is stuck in a holding pattern. Four years ago the coalition government stamped on Labour proposals for a third runway, and also appeared to rule out new runways at Gatwick or Stansted. An independent commission was set up to look at runway provision in the south-east.

 
As any Whitehall-watcher knows, creating an independent commission is the best way to kill any idea stone dead. The Heathrow growth plan had been kicked into the long grass.

But the long grass wasn’t tough enough to keep Heathrow down – and the plan is back. The Airports Commission published an interim report late last year suggesting one new south-east runway would be needed by 2030.

Meantime Heathrow Airport bosses have started to talk up the prospects of a scheme they describe as “absolutely deliverable”. By this time next year – with the May 2015 general election safely out of the way –

a new government could be ready to take a decision in favour.

CHANGE OF MOOD
The change in mood comes as the £2.5bn revamp of Heathrow’s Terminal 2 is completed. Warehouse occupiers and developers are already taxiing into place ahead of a decision. The Heathrow property logistics scene – both within the

perimeter fence and beyond – is one of the busiest, most expensive and most cut-throat in Europe. And it’s getting tougher. Prologis, whose business is to be in the most sought-after locations, has been the vanguard. Earlier this year it announced plans to build two speculative warehouses at Prologis Park Heathrow. The 36,270 sq ft facility could set a new record rent, whilst the larger (and slightly riskier) 103,000 sq ft unit is a testament to Prologis’ faith in the location. With the shortage of supply of Heathrow warehouses as acute as ever, the developer can be sure of a letting – if not a pre-letting – before construction is completed. A few weeks later it upped its stake in the Heathrow scene, buying the 171,500 sq ft Lakeside Industrial Estate, Colnbrook. The four units are already let to DX Network Services and Tourvest Duty Free (UK), which means Prologis earns income today and tomorrow, and has the prospect of redevelopment further ahead.

Segro -– one of the biggest, if not the biggest names in West London property – is also refuelling for the future. A partnership with (among others) Aviva Investors and Aberdeen Asset Management, is preparing to deliver a small but valuable development close to  Heathrow’s cargo terminal.

The 6.5 acre Altitude Heathrow site could provide up to 150,000 sq ft on the A30 and the Hatton Cross Transport Interchange. Fund manager Nick Smith explains: “This site is being delivered at a time when Heathrow Airport is investing £5bn into its terminals and infrastructure to stimulate growth, whilst there is a backdrop of a constrained supply of Grade A warehouse facilities in core Heathrow locations, with levels at an all-time low.” Further afield, Segro started work late last year on an 84,000 sq ft speculative development at Advent Way, Enfield. In today’s severely constrained market it looks like it made a safe bet. Research by surveyor JLL shows the take-up of industrial floorspace around Heathrow is about 20% above average, and the supply of floorspace (at a little less than 7m sq ft) the lowest since 2009.
 
Segro’s earlier efforts at speculative development are already paying off. Its 25,000 sq ft speculative scheme at Tudor Gate, Park Royal, was let earlier this summer to Premier Moves, which is moving itself from two sites in Essex.

Expensive turf
London land prices mean that industrial development – which earns relatively little for developers – struggles to compete with higher-value uses, such as residential. In these circumstances, development sites are few, and small, and are not expected to get more plentiful.

The supply of sites will be even tighter if football clubs start to eye them as potential locations – which is what Queens Park Rangers is doing in the Park Royal area. The club is said to be offering considerably more than £20mn for the 285,000 sq ft warehouse on a 12-acre site controlled by John Lewis. It would become a training ground whilst the 40,000 seat stadium itself goes to Old Oak Common. 


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