SHD Logistics’ property editor David Thame explores the lively logistics property market surrounding the north and east of London.
The first vessels sailed into the £1.5bn London Gateway container terminal a year ago this month. And what a year of ups and downs it’s been for DP World’s 9.25m sq ft Gateway-linked logistics park.
On the upside, there’s been a steady increase in trade: five new shipping routes to North America, South America East Coast & West Coast, the Middle East, and Europe have helped double capacity. On the downside, Marks & Spencer – who had been lined up as the anchor tenant and retail jewel in the crown of the logistics park -– pulled out of a 900,000 sq ft port-centric warehouse deal.
Despite denials, rumours had been in the air since Christmas 2013, and when the blow finally collapsed in May 2014. The plan for a £130m facility was to have demonstrated retailers’ faith in the port and its capacity to act as a UK distribution centre. M&S said it would concentrate instead on two NDCs – Castle Donington and Bradford – supported by four of the existing RDCs which will be converted into NDC use.
As yet there’s been no news on two other rumoured Gateway deals.
Tesco and Uniserve were said to be seriously interested in the estuary site, thanks to its road and rail links. Letting agent Jones Lang LaSalle has remained tight lipped. Better news came from Prologis, the US-owned logistics developer, who signed up with Gateway owner DP World to develop a 316,000 sq ft distribution centre at the London Gateway Logistics Park. The idea is to offer flexible distribution space in the crucial M25 distribution market. The target date for the completed building is spring 2015.
The new unit will join a growing market in the North and Eastern section of the orbital motorway. The summer saw plans emerge for a new 500,000 sq ft warehouse development at Edmonton. The scheme by LaSalle Investment Management would see one unit of 320,000 sq ft. Speculative development is already underway - not just as Gateway but at Thurrock where three new units of 50,000 sq ft, 100,000 sq ft, and 130,000 sq ft are under construction. Blackrock and Bericote is behind the plan next to junction 31 of the M25, a location already favoured by Wincanton, DHL, Marks & Spencer and others. In all, 1.7m sq ft of development is underway, according to research from DTZ. However, much of this is for smaller units and relatively little for bigger boxes, suggesting the supply of large units will remain tight. “Speculative development will boost grade A availability but it is not expected to fulfil the demand from occupiers in this very active region,” DTZ concludes. “Therefore, we expect rents to continue rising by 0.8% per year over the next five year, closing the rental.”
Occupiers have a limited choice, with retailers leading the way. Sainsbury took 180,000 sq ft at Bromley-by-Bow, whilst Poundland signed for one of the largest deals, taking 350,000 sq ft at Harlow. Amazon took 142,000 sq ft in Bow – but the Heathrow side of the M25 tends to capture most of the higher-value requirements. According to CBRE, the London property market’s fortunes will depend heavily on the kind of competition offered elsewhere, but the east has some unique selling points that should ensure it retains occupier interest.
“Ultimately the pattern of development will be influenced by competition from other sites,” the firm’s researchers say. “In areas where competition for land is high then there is a greater strategic benefit to develop on a speculative basis – it provides a genuine differentiator to occupiers. Areas to the east of London, including the A13 corridor though Essex, fall into this category, unlike the more restricted land supply to the north and west of London. In those areas, perusing a design and build strategy makes more sense.”