Proximity to the UK’s biggest air cargo hub makes the western M25 a magnet for logistics operations. But, as Liza Helps finds, warehouse space is in short supply and there is now talk of a return to speculative building.
The availability of warehouse space is at its lowest since the recession says Jones Lang LaSalle in its latest Western Corridor Industrial & Warehouse Market Report citing just 6.6 million sq ft of available space in West London, a drop of nearly 20 per cent over the 12 months to June 2013.
Bonnie Minshull of Savills says: “It’s really all about the lack of stock.” Bridget Outtrim of Jones Lang LaSalle agrees: “The lack of speculative development in recent years has led to the West M25 having the lowest levels of Grade A supply for a decade. There is a shortage of good quality modern new warehouses in fact there is half the Grade A buildings available today compared to 2006 when speculative development was at its peak.”
In the whole of West London there are only two Grade A units of 100,000 sq ft and over available. These include AIPUT’s South Cargo Centre which 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 50kn/sqm floor loading, eight dock and two level access doors as well as 90 car parking spaces.
It is situated to the south of Heathrow Airport, approximately 2.9 miles from the cargo terminal. The site is accessed via the A30 Great South West Road (dual carriageway) and the A312, The Causeway. Agents are Jones Lang LaSalle, Dowley Turner Real Estate and Vail Williams.
In Park Royal there is Standard Life and Canmoor’s One Park Royal warehouse (formerly known as Thunder) which totals 107,772 sq ft. Canmoor developed the warehouse as part of a two unit scheme on land it acquired from drinks company Diageo in 2008. The 5.2 acre scheme provided two buildings with an eaves height of 12.05m. One Park Royal, the larger of the two units has five dock and four level access doors.
Rainsford Road is being extended to link to the A40 Western Avenue, providing the scheme with good access to the M40/M25 motorways and central London. Agents are Gerald Eve, Dowley Turner Real Estate and CBRE.
While there may be only two units over 100,000 sq ft available to let in the market, there are some smaller second-hand warehouses to tempt occupiers. DTZ and Savills are marketing Unit 1 Western Avenue, which totals 83,209 sq ft, at a quoting rent of £12.25 per sq ft. It was formerly let to fashion company World Trade Design which was bought out by JD Sports.
The property boasts 7.3m eaves and two self-contained yards as well as level access loading on two elevations. It has a prominent frontage to the A40 Western Avenue.
Grade A supply accounts for just 13 per cent. Such is the shortage of Grade A, that it is no surprise to hear that 69 per cent of floor space taken up in the first half of the year comprised Grade B space.
One of the largest Grade B deals involved logistics and parcel distribution company DX Network Services taking 135,880 sq ft of space at SWIP Property Trust and Centurion Properties’ Lakeside Industrial Estate near Heathrow Airport in one of the largest letting deals in the area for the last ten years. DX took a ten-year lease without a break at a rent of £9.32 per sq ft. It has taken the space in response to the increase in activity owing to e-commerce.
Altus Edwin Hill, Aspect Property Consultants and Dowley Turner Real Estate acted for SWIP Property Trust and Centurion. The Property Department represented DX International and Tourvest was unrepresented.
In another deal involving Grade B stock, DHL Aviation secured an 81,000 sq ft unit at the Heathrow Cargo Centre from Airport Property Partnership, a joint venture between SEGRO and Aviva Investors.
Sam Vyas of GVA says: “Plenty of enquiries depleting and indeed very little stock all points resurgence in speculative development and return to a D&B market.”
However according to Tunde Adebgemile of DTZ: “There is a gap between expectation and reality – there has been some speculative activity but not in the quantities hoped. It is thought there is about 500,000 sq ft within West London nearly complete or under construction.”
Many of these schemes are multi lets with relatively small unit sizes. They have been extremely popular. Chancerygate’s Link 4-40 in Southall has sold out within a year while Kier property has only two units left at its 70,000 sq ft Trade City scheme in Uxbridge. Eight units have been sold and a further two are under offer.
According to Bridget Outtrim: “Most development recently has been driven by the strong pre-let market.”
These include SEGRO’s Schenker and Rolls Royce pre lets on the Portal Site, SWIP’s Dnata pre let on Blackthorn Close and more recently SEGRO’s 70,000 sq ft pre-let to Toll on Southern Approach where Toll took a 15-year lease at a headline rent of £12 per sq ft. Bridget Outtrim continues: “In the second hand market units which have been stuck on the market are now also letting. Our West London team is averaging 140 viewings a month.”
Such is the strength of demand that a speculative scheme started by SEGRO was let prior to completion. Launched at the beginning of the year SEGRO in its Airport Property Partnership joint venture with Aviva, started its first speculative warehouse construction in Heathrow in five years.
The 16,030 sq ft self-contained facility was being built on the back of a successful pre-let to Toll Group on the same site on the North Feltham Trading Estate in Heathrow. It was let in October to Williamson Hill, a fine art storage and freight forwarding company.
Stephen Payne of SEGRO is expecting that another speculative scheme built by the company will let quickly as well. 1 Tudor Gate totals 24,878 sq ft, with 20,259 sq ft of warehouse space and 4,619 sq ft of two-storey offices. The building has achieved BREEAM outstanding.
The warehouse has 10m eaves a 50kN/sqm floor loading as well as a secure yard and ample car parking. Jones Lang LaSalle, Doherty Baines and CBRE have been appointed to market the property which fronts Abbey Road. Other speculative schemes include Volume and CBREGI’s 58,523 sq ft Nexus scheme in Heathrow. The scheme is made up of five units from 8,275 sq ft to 20,800 sq ft. The warehousing benefits from 8.5m eaves, a 50 kN/sq m floor loading capacity as well as surface level loading doors. Letting agents are Jones Lang LaSalle and Altus Edwin Hill.
Vyas says: “There is an air of cautiousness in the market.” However there are still developers willing to progress with larger schemes. SEGRO has planning permission for 160,000 sq ft at its Origin site in Park Royal where it has announced plans to speculatively build three stand-alone buildings of 36,000 sq ft, 53,000 sq ft and 69,000 sq ft, all with secure yards.
All of the units will be highly sustainable and constructed to a BREEAM excellent standard.
The scheme was delayed by the land provisions set aside for High Speed Two, but it is expected that the developer will be on site shortly. Letting agents are CBRE, Doherty Baines and Jones Lang LaSalle.
Prologis is also thought to be considering speculative development on the remainder of its Prologis Park Heathrow scheme roughly totalling nine acres where it has permission for two buildings of 54,197 sq ft and 109,319 sq ft. The smaller unit known as DC5 would have 10m eaves, eight dock and two level access doors and a 50kn/sq m floor loading while the larger unit, known as DC6, would have 12m eaves, 10 dock and three level access doors.
The developer also has the option to build a single unit totalling 165,000 sq ft on the site. Letting agents are Dowley Turner Real Estate and Savills.
While some developers are considering speculative development others are also squaring up to bring forward sites for design and build.
One of the largest sites is Black Rock UK Property Fund’s 17-acre site at Bedfont Industrial Estate which could accommodate up to 300,000 sq ft. The site was acquired along with the rest of the Bedfont Industrial Estate from the Trehaven Group for £24 million in August 2013.
There is Titan a 9.39 acre site out near Heston that could deliver nearly 240,000 sq ft of warehouse space not far from Junction 3 of the M4 motorway fronting Cranford Lane. It is being marketed by GVA and Jones Lang LaSalle on a freehold basis.
The site benefits from full planning permission for a new detached warehouse and distribution unit of 238,033 sq ft B8 use with no restriction on working hours. The planning permission provides for a warehouse with 12m clear internal height, 65m service yard, 155 car parking spaces and 44 HGV parking spaces.
There is also the old Schenker site totalling 6.5 acres which was acquired as a joint venture between APP and APUT. The redevelopment could see a brand new warehouse of some 120,000 sq ft built on the plot. Plans will be submitted in the New Year. Savills and DTRE are joint letting agents.
Rents: Market hardens
Jones Lang LaSalle anticipates that standard industrial rents in London will increase by 1.2 per cent a year between 2013 and 2017.
At present most agree that prime rents are static but that incentives are reducing. John O’Brien of SEGRO says: “Rents are remaining static but incentives are coming in due to lack of stock. This is creating more competition for the right unit and we are certainly looking to harden our incentives.”
Jones Lang LaSalle’s Bridget Outtrim notes: “Rent free periods are starting to come in; 12 months’ rent free on a five year term was common near Heathrow but you could shave a couple of months off that now.”
In Park Royal landlords can now expect to grant around six months rent free on a five-year term for prime stock and around nine months’ rent free on a five-year term for secondary stock.
There is still a big difference in achievable rents for units that offer secure yards compared with similar units that do not. Jones Lang LaSalle reckons this could be as much as £2 per sq ft with units securing around £11.50 per sq ft with yards and similar units without yards achieving £9.50 per sq ft.
Cushman & Wakefield puts average Heathrow rents at £12.75 per sq ft, the same as last year. However, says Tunde Adebgemile of DTZ: “While quoting rents stayed the same the lack of competing product has caused a hardening thus the discount between quoting and dealing is much closer.”
Top rents at Heathrow are over £14 per sq ft achieved on SWIP’s pre-let to Dnata on Northumberland Close last year. This is a unique location close to the cargo terminal area and there is only one small site remaining close by on SEGRO’s Portal Site where this level of rent is likely to be achieved.
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.
Stephen Payne of SEGRO says: “Landlords do not need to give everything away as good quality available space is now in great demand. Landlords can tighten the incentives and get a full rent at quoting price.”