Tuesday 27th Jun 2017 - Logistics Manager

Crowded House

With competing land uses and spiralling demand, how is the market faring in West London? Liza Helps reports.
At the beginning of this year Savills reported that the amount of warehouse space around Heathrow Airport had fallen to less than 18 months’ supply – and even less was to be found at Park Royal.

This article first appeared in Logistics Manager, September 2016

This article first appeared in Logistics Manager, September 2016

Since then, however, says Bridget Outtrim of Savills, developers have responded: “The lack of quality stock has largely been addressed with the development of some 1.1 million sq ft of speculative warehousing feeding the hole in the market.”
New speculative schemes include SEGRO and Aviva Investors joint venture Airport Property Partnership’s The Portal on-airport scheme totalling 37,000 sq ft which has a secure yard, 34 car oaring spaces as well as three loading doors. The building is available through DTRE, Savills and Dohertybaines. On the larger front there is Prologis‘ Prologis Park West London development on 30 acres of land at Stockley Park. An initial speculative phase of two units totalling 78,780 sq ft and 113,335 sq ft are due to reach practical completion in November. The properties will boast 12m eaves, 50m yards as well as FM2 level flooring. The larger unit has 10 dock and two level access doors, while the smaller unit will have seven dock and two level access doors. Letting agents are DTRE, Savills and JLL.
Chancerygate’s Poyle Central, which is being marketed by JLL and DTRE, is yet another speculative warehouse hoping to cash in on the unsatisfied demand. It totals 43,486 sq ft and has 10m eaves.
At the beginning of the year availability round the airport stood at 2.1 million sq ft, which based on the five-year average annual take-up of 1.4 million sq ft, Savills estimated would equate to just 1.4 years of supply.
Take-up last year fell below this five-year average, totalling 1.1 million sq ft, a 17 per cent decrease on 2014, which Outtrim attributes to a lack of good quality units in core locations. The additional new speculative space coming on to the market looks to stave off the inevitable for at least a year.
This speculative bounce is the result of continued demand appetite from occupiers, which saw previous speculative stock snapped up within 6 months of completion coupled with a continued shortage of Grade A space.
“We do not have an oversupply situation, in fact Grade A space is badly needed,” she says. Demand for prime space in Heathrow remained strong in 2015 with 487,795 sq ft of Grade A space let, the highest level since 2011. It has not stopped into 2016 with the most recent deal seeing Bolloré Logistics snapping up an 80,440 sq ft speculative warehouse prior to completion at Skyline, Heathrow. The two-unit scheme was speculatively developed by Airport Property Partnership, the joint venture between SEGRO and Aviva Investors. The remaining unit will total 73,530 sq ft.  Savills, DTRE and De Souza are agents on the scheme.
It is not just new space being snapped up. Kuehne & Nagel has taken a ten-year lease on an 86,000 sq ft warehouse formerly occupied by Wincanton in Feltham. The deal was off-market and was completed with surrender of Wincanton’s lease and the new lease occurring concurrently.
In another deal earlier in the year DFS took 44,000 sq ft at SEGRO’s Greenford Park on a ten-year lease. Alan Holland, SEGRO’s business unit director for Greater London, says the fact the unit was re-let within eight weeks of its previous owner leaving is “testament to the fact that it is a prime logistics location”.
The lack of supply has seen an increase in prime rents near Heathrow, rising to £16 per sq ft immediately south of the cargo terminal and £13.50 per sq ft in North Feltham.
Savills predicts that rents are likely to increase further still when a number of new prime schemes come to the market later this year, with SEGRO’s final unit at The Portal quoting £17.50 per sq ft.
According to Strutt & Parker’s Ben Wiley, rents in Greater London are likely to exceed £20 per sq ft in the next three years. The consultancy’s analysis shows that since 2000, rents for logistics and industrial space in Greater London have outperformed those for offices and retail outside central areas.
Key locations such as Heathrow have already seen prime rents hit £17.50/sq ft as occupiers compete for increasingly scarce space.
The research suggests structural factors are pushing rents higher than would be expected during a period of economic growth and that they are set to top £20/sq ft by 2019. “For many occupiers in Greater London, the need to be in a strategic location has begun to trump the levels of rent they are willing to pay,” says Wiley.
Lack of space has also contributed to the trend, with around 10 per cent of London’s industrial land having been lost between 2001 and 2010. A further reduction of 10 per cent is expected between 2011 and 2031. James Craddock of SEGRO notes: “A number of sites are being lost to other land uses and that is putting the pressure on to find new sites and new opportunities which just compounds the [warehouse space] supply issue.”
SEGRO is currently pushing through planning for the former Nestle site in Hayes. Originally 100 per cent industrial the site owing to its location is now being brought forward as 60 per cent residential with 12 acres for logistics equating to some 250,000 sq ft.
Paul Weston of Prologis says: “We are always looking for land and with the shortages particularly in London a lot of land being developed today is brownfield. There is a question when you look at greenfield is what quality is it. The green belt needs to be reviewed; protect the beautiful bits but there are areas that are not of any real benefit…”