Monday 24th Oct 2016 - Logistics Manager

Valley of dreams

In the early months of 2004, here at Gazeley we have seen the emergence of a significant number of specific requirements for large distribution centres around the UK – in some cases for depots as large as 65,030sq m – and I am sure that we are not alone.

These enquiries are primarily coming from retailers as well as from third-party logistics companies operating on behalf of the large store and high street chains – clear evidence of retail sector confidence based on a strong economic outlook and good performance over the past 12 months.

However, other industry sectors such as automotive and electrical companies are also back on track and seeking to expand and/or update their distribution networks once again.

One thing that is clear, however, is that it is not going to be possible to satisfy all of these requirements given the current supply side of the equation within the Thames Valley. While the office market in the area has grabbed headlines over the past 18 months with very little take up of space and an oversupply of new accommodation, the logistics property sector has been much lower key.

As the logistics sector becomes more acquisitive again, this balance will be lost and I believe that this will have significant implications for occupiers both in terms of where they will be able to locate in the Thames Valley and how much they will have to pay to do so.

London and the areas within and immediately around the M25 (including Heathrow) have long been by far the most expensive locations for all kinds of property both residential and commercial, including logistics space. Land is at a premium; sites suitable for large-scale development are often in fragmented ownerships and can sit uncomfortably with neighbours. Rent and other occupational costs are high; labour is expensive and often in short supply.

Clearly some logistics occupiers have an overwhelming operational need to be located within the M25 or close to Heathrow – at a scheme like Brixton Estates’ Premier Park development at Park Royal, London NW10, for example, or British Land’s Heathrow Gateway in Feltham. Such occupiers accept that they will have to pay the premium rents that these locations command.

Organisations with locational flexibility are pushed further afield, particularly westwards along the Thames Valley, down the M4 corridor towards Reading, Newbury and beyond. The lull in take up over the past 12 months eased the pressure slightly, but with renewed demand this trend will re-emerge.

Beyond the M25, there is an acute shortage of land suitable for 23,225sq m-plus distribution centres causing a ripple effect of increased cost down the Thames Valley. When, for example, Gazeley pre-let a 33,059sq m distribution centre at our Mill Park scheme in Thatcham to Scottish & Newcastle back in 2002, the £8 per sq ft (£86.22 per sq m) rent was at a 20% plus premium on previous highs for the area.

The 36-acre (14.6 hectare) Mill Park is being developed by BL Gazeley, a 50/50 joint venture between Gazeley and the British Land Company. One of the largest distribution sites in this part of the Thames Valley, its strategic location in Thatcham (near Newbury) is just seven miles from the M4 and close to the A34, which provides dual carriageway access to South Coast and Midlands via Oxford. The site also boasts its own potential freight railhead.

Scottish & Newcastle’s southern regional distribution centre for the Scottish Courage Brewery chains in southern England opened at Mill Park early last year 2003 and BL Gazeley has recently commenced construction of a 23,690sq m distribution centre on the remaining land.

The success of Thatcham together with our conviction that the upturn in demand will push occupiers further and further into the Thames Valley, has led Gazeley to seek further involvement in the area. In Didcot, for example, we are purchasing a 24 acre (9.71 hectare) site from Innogy. The site, which is currently used for the storage and distribution of cars, forms part of the industrial area adjoining Didcot Power Station. We have secured planning consent here for a 32,197sq m purpose-built chilled and frozen food distribution centre for Asda. ProLogis also has a new development located in Purchas Road, Didcot.

The Thames Valley will undoubtedly remain popular with logistics occupiers, but as demand grows they will face tough competition if they want to secure sites, and as a result we will see more and more occupiers looking further and further west in order to satisfy their requirements. n

Nigel Godfrey is development director for Gazeley. Tel: 01908 839100.