Monday 26th Sep 2016 - Logistics Manager

London M25 West: Time to speculate?

Take-up in the western corridor reached its highest level for ten years in the first half of this year with 2.5 million sq ft transacted for occupation according to Jones Lang LaSalle’s latest Western Corridor Industrial & Warehouse Market Report.

The uplift in take-up was led by West London, especially a marked revival around Heathrow Airport. By contrast, take-up in the Thames Valley fell compared with the second half of 2010, although it remained well above the 2010 average level.

In spite of this there is still as much space as there ever was in the region. The problem is most of it is grade B. According to Jones Lang LaSalle there was 6.69 million sq ft available at the end of June 2011. However, less than 20 per cent of that was grade A space. In fact the level of grade A space stands at just 1.34 million sq ft, its lowest level since 2004.

The report says that the reason behind this state of affairs lies in “the huge changes in the way retail markets are served, which have created demand close to London from third party logistics operators and retailers and the continuing strength of demand for goods and services in London”.

“A third factor,” says Bridget Outtrim of Jones Lang LaSalle, “is churn… 2006 was a strong year for take-up in this region and its fifth anniversary creates opportunities for occupiers with lease expiries or breaks to take advantage of the favourable terms that are on offer compared to 2006.”

The latest lettings include a deal to Air Menzies, which has taken 56,000 sq ft on a 15-year lease at developer SEGRO’s Polar Park scheme for the storage and distribution of air freight, while Williams & Hill Forwarding has taken 37,000 sq ft at SEGRO and Aviva’s Spacewaye Park on the North Feltham Trading Estate.

Alan Holland of SEGRO said: “These land-side deals demonstrate the increasing levels of demand we are seeing around the Heathrow market. Following our recent announcement of 70,000 sq ft of new airside occupancies at Gatwick and Stansted, it’s clear there is continuing demand for both air and land-side property from occupiers requiring close proximity to London’s busy international airports.”

Aspect Property acted on behalf of Williams & Hill and Air Menzies was represented by Jones Lang LaSalle. As a result of the take-up of grade A space and the increase in grade B space, Bonnie Minshull of Savills says: “There is a distinctive two-tier market as a result.”

Bridget Outtrim of Jones Lang LaSalle agrees: “Prime rents have stayed the same but rents for grade B stock have dropped.”

Grade A headline rents remained at £12.50 to £13 per sq ft with key locations next to the cargo terminal commanding premiums. The DB Schenker pre-let of 107,000 sq ft at SEGRO’s Portal site off Scylla Road was agreed off rent of £14 per sq ft while the 70,000 sq ft letting to Cargo Handling was reportedly over £13 per sq ft off a 20-year plus lease. DTZ, Colliers International and de Sousa advised.

Under pressure

“Rents for poorer grade space are still under pressure, as property owners cut asking rents to try and attract interest,” reports Jones Lang LaSalle. “In many cases this strategy has been rewarded by lettings, but it means that in today’s market there is a discount of 25 to 30 per cent for grade B space compared with grade A.”

It is possible to get good quality secure well-located grade B space for £8 or £9 per sq ft in West London. Tunde Adegbemile of DTZ cites the letting of Schroder’s 200,000 sq ft Tetris 40 building to Panalux. The Entertainment UK building was being marketed through Savills at a quoting rent of £6 per sq ft.

Sam Smith of CBRE says that some areas are so popular that rent levels even for grade B space are relatively high. “We are running out of stock [in Park Royal] and occupiers are having to consider pre-lets as the only way to secure space. Occupiers still think there is room for manoeuvre because there is still a deal to be made but it is not true of all cases.”

At present she says there are only a handful of buildings, second-hand and new, available. These include 30,000 sq ft in Premier Park and Standard Life and Canmoor’s Thunder and Lightning scheme which together total 170,000 sq ft.

Canmoor bought the 5.2-acre site in Park Royal in 2008 from drinks company Diageo. The £25m scheme provides two buildings of 63,862 sq ft and 107,772 sq ft that can be combined to form one facility. Both units have an eaves height of 12.05m as well as substantial office content. Thunder, the larger of the two units has five dock and four level access doors while Lightning has three dock and two level access doors.  Joint letting agents are Gerald Eve, Dowley Turner and CB Richard Ellis.

There is also SEGRO’s X2 building built by Brixton. The two-storey warehouse at Heathrow only has the 120,000 sq ft top floor remaining which can be split into four units of 30,000 sq ft each. Letting agents are Savills, dohertybaines and de Sousa.

The former JVC headquarters on Staples Corner is also available. This second-hand unit totalling 120,000 sq ft already has a number of interested parties. It is available on a sub-lease of assignment through letting agents DTZ, which is quoting a rent in the region of £10.50 per sq ft. The property boasts 11m eaves, 12 dock and one level access door as well as a 30m deep yard.

There is also space at Unit 1 at Polar Park totalling 125,000 sq ft, as well as the remaining space in Unit 2 which totals about 40,000 sq ft. Letting agents are Savills, dohertybaines and de Souza.

There is a further 122,000 sq ft at South Cargo Centre. Unit 1 boasts, 112,000 sq ft of warehousing space and 9,450 sq ft of offices over two storeys. It has a 12m eaves height, a 50 kN/sq m floor loading, eight dock and two level access doors. Letting agents are Jones Lang LaSalle, Dowley Turner Real Estate and Vail Williams.

Looking at available sites in the region there is Scottish Widows and GOYA Development’s Central Park scheme in Park Royal which it acquired from Carey for £11 million. The site, which measures 6.5 acres, will house nine self-contained warehouse units ranging in size from 10,837 sq ft to 32,969 sq ft totalling 160,000 sq ft. Letting agents are Colliers International and Capita Symonds.

Tom Clews of GVA is promoting Titan at Heathrow. This ten-acre site has planning for a single high bay building of 233,000 sq ft or alternatively a multi-unit scheme of buildings from 80,000 – 150,000 sq ft. Clews says: “The site forms part of what was the Parkway Trading Estate which is now owned by InfraRed and its development partner Volume. The old 1970s warehouses have been cleared to create a development platform. With planning in place the development team are in a position to deliver new buildings to occupiers in 2012.”

He points out that with the comparable sites in the area under offer,  Titan is really the only available site this scale capable of accommodating those national 3PLs, airline and cargo handlers looking at consolidating their operations out of a single site. Letting agents are GVA and Jones Lang LaSalle.

Further north the situation of little or no available space is particularly true of Hemel Hempstead, which is reporting no new buildings at all and none over 80,000 sq ft thanks to a spate of lettings which saw Amazon take the 20.22-acre Mammoth site on Maylands Business Park from J Murphy & Sons who acquired it for £6.4 million in 2009 for heavy plant storage. It is believed the internet retailer has secured a 15-year lease at a rent in the region of £6.50 per sq ft on the 450,000 sq ft building.

The site occupies an incredibly prominent position less than one mile from Junction 8 of the M1 and five miles from the M1/M25 interchange.

Food and drink distribution company Palmer & Harvey secured G.Park Hemel. The 167,730 sq ft warehouse was let on a 25-year lease at an initial rent of £5.95 per sq ft. Letting agents are Savills and CBRE.

And SEGRO let an 88,000 sq ft warehouse at its Maylands Wood Estate to Gyron Internet for a new data centre facility. Gyron, has taken the building on a 20-year lease, following expansion. Brasier Freeth and CB Richard Ellis acted for SEGRO.

Ben Wiley of Strutt & Parker says: “Hemel Hempstead has a big problem with no more big boxes. There is land, however the problem is how to unlock it.”

The land in question is held by the local authority that in the past have resisted development for distribution. However the town is extremely well-connected for logistics and there are a number of enquiries for the location.

Developer Bericote has a site in the town known as Boundary Way, which is being marketed by Dowley Turner Real Estate and Lambert Smith Hampton. It could accommodate up to 150,000 sq ft of space.

Speculative development

Pent up demand means that speculative development is under way around Heathrow, Park Royal, Southall, Uxbridge and Slough. None of these developments includes any single warehouse over 40,000 sq ft.

That is not to say that there won’t be any larger sheds built speculatively just that no-one has committed to doing so at present. However, rumours are abounding that SEGRO may be considering speculatively developing its 24-acre Origin site in Park Royal where it has detailed planning consent for a number of warehouses from 50,000 sq ft to 535,000 sq ft. Letting agents are CBRE, Jones Lang LaSalle and dohertybaines.

SEGRO is pushing forward with some speculative development. Construction is now under way on two speculative detached warehouse/production units on Ajax Avenue. 665 and 670 will provide 32,879 sq ft and 30,666 sq ft respectively, comprising warehouse area with 8m clear height. Letting agent is Cushman & Wakefield.

Other speculative schemes underway include ING Real Estate Investment Management and Volume Development’s Nexus Heathrow, located on North Feltham Trading Estate close to Heathrow Airport. Nexus Heathrow will provide five new leasehold warehouse units ranging from 8,000 to 20,487 sq ft. It is expected to reach practical completion in the New Year.

Ian Wilson, fund manager at ING REIM says: “We are undertaking the development to capitalise on the tightening occupational market around Heathrow and the lack of new build competition for smaller industrial units in the area. This along with the growth of air transport at Heathrow is expected to drive rental growth going forwards.” Jones Lang LaSalle and Altus Edwin Hill are letting agents.

In Southall Chancerygate is charging along with its 86,000 sq ft 4-40 Link scheme which will comprise 12 units that range from 1,300 to 16,000 sq ft. Melinda Cross of Jones Lang LaSalle says that one unit has already been pre-sold and that three further units are under offer. She says the remaining units could be combined to make a single space of up to 55,000 sq ft.

“This is the first speculative scheme to reach practical completion in two and a half years,” she adds. Jones Lang LaSalle is the sole agent.

23144  Liza Helps is Logistics Manager’s Contributing Editor, Property.

Logistics Manager, December 2011