Vacancy levels are at their highest for 15 years according to Jones Lang LaSalle’s Heathrow and Western Corridor Industrial Market Report, standing at just over nine per cent at the half way mark of 2010 with some 7,079,000 sq ft available in west London and a further 6,012,000 sq ft in the Thames Valley, giving a total of just over 13 million sq ft. However some 7.65 million sq ft is grade B space and 2.56 million sq ft is grade C, leaving only 2.88 million sq ft classed as grade A.
Looking at the availability of grade A space Bridget Outtrim of Jones Lang LaSalle says: “At these levels it would only take one or two sizeable lettings to severely dent the grade A supply.”
Everyone is agreed that there is a lot of demand. Outtrim adds: “With just under 2 million sq ft let during the first nine months of this year – evenly split between the west London and Thames Valley sub markets – Jones Lang LaSalle predicts occupier take up is on track to match or maybe exceed 2009 levels of 3.2 million sq ft. There are a number of air cargo operators in the market who are considering sites around Heathrow and activity from retailers seeking large units along the A40 will give a welcome boost to the year end take up figures.”
Indeed, according to DTZ’s latest industrial research; “There has been increased activity in Heathrow and west London in Q3 and a number of longstanding available buildings are currently under offer.”
Supermarket retailer Sainsbury’s has taken SEGRO’s 233,148 sq ft Verdus building in Greenford which boasts 12m eaves, 14 dock and three level access doors. The property was being marketed through joint letting agents CB Richard Ellis, King Sturge and Dohertybaines at a quoting rent of £9 per sq ft. The facility was formerly occupied by Entertainment UK and became available at the beginning of 2009 after the collapse of its parent company Woolworths .
SEGRO’s 122,398 sq ft Polar Park unit at Heathrow is also under offer to logistics company Trans Haul while two further units of 70,000 sq ft and 15,000 sq ft are under offer at its Spaceway Park scheme on the North Feltham Estate to a bonded warehouse company and a security company respectively. Letting agents are Colliers International, De Souza and DTZ.
Three potential occupiers were thought to be putting in offers for CP2, a 52,000 sq ft warehouse on the Central Park Estate in Hounslow built by AIPUT. The property has an 8m eaves height as well as two dock and three level access doors, a three phase power supply and a 40kN/sq m floor loading. It also benefits from a 45m deep yard. Joint letting agents King Sturge and Dowley Turner are quoting £12.50 per sq ft. It is thought a deal on the building will be signed shortly.
Although slightly smaller, Canmoor’s Unit 14/15 on Clocktower Road, Isleworth has been snapped up by the London Ambulance Centre. The 17,000 sq ft facility has been taken on a 15-year lease at a rent of £11.50 per sq ft.
With such demand and space being taken up, there are certain size categories where there is not much stock.
Peter Freeman of Vail Williams says: “If [an occupier] wants a 20,000 sq ft unit within a terrace there are quite a few but if they want a modern 20,000 sq ft unit within in its own yard with a decent eaves height etc, it’s not going to be quite so easy. There are specific areas and size ranges [within the Heathrow market] where there is a distinct lack of stock.”
Samantha Smith of CB Richard Ellis agrees and adds that along the A40: “There has been a surge in requirements around the 50,000 sq ft mark and with only a handful of units in that size bracket available they will be taken up quickly.”
Sally Bruer of Gerald Eve says: “There is currently just 1.5 years of available supply in this size band in West London.”
Developments in the 50,000 sq ft bracket include SEGRO’s Unit 2 Greenford Park which offers a facility of 43,514 sq ft with column free warehouse space, first floor offices and a 43m secure gated yard. It is being marketed by CB Richard Ellis, King Sturge and Dohertybaines.
There are units from 12,000 to 80,000 sq ft at HSBC’s Ridgeway Distribution Centre in Iver being marketed by Vail Williams and King Sturge.
On the second-hand front there are a number of units from 50,000 sq ft available at Bedfont Lakes on the market through Vail Williams and Jones Lang LaSalle
For larger stock, that is immediately available the market is even tighter. There is Standard Life and Canmoor’s Thunder and Lightning in Park Royal 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.
Rainsford Road is being extended to link to the A40 Western Avenue, providing the scheme with good access to the M40/M25 and central London. Joint letting agents are Gerald Eve, Dowley Turner and CB Richard Ellis.
There is also SEGRO’s X2 building built by Brixton. The revolutionary 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.
John O’Brien of SEGRO says: “This is perfect for occupiers who don’t need huge floor plates but do need to move things quickly in and out, the fact that the upper level is accessed by two one-way ramps means that the belief that it is difficult to manoeuvre around is a total misconception.
In addition, O’Brien says: “We are marketing it at a rent of £12 per sq ft, which means that it has come down considerably.”
Prior to its acquisition by SEGRO the building had been marketed at an initial quoting rent of £17.50 and £19 per sq ft depending on size of space taken. This had caused huge controversy as quoting rents averaged between £13.50 and £14 per sq ft for the area at the time. Letting agent are CBRE, Swire Associates and King Sturge.
O’Brien says that on side (meaning within Heathrow Airport itself) rents reach £25 per sq ft, this is outside the perimeter and has been priced accordingly.”
Gus Haslam says that Unit 1 South Cargo Centre is still available, totalling 122,000 sq ft the building 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/sq m floor loading, eight dock and two level access doors, as well as 90 car parking spaces. Letting agent King Sturge is quoting £13.50 per sq ft.
On the second-hand front there are the remaining Entertainment UK buildings: Unit 3 Westlands totalling 244,300 sq ft and owned by British Steel Pension Fund, on the market through King Sturge and Colliers at a quoting rent of £7 per sq ft. The building has 7.6m clear eaves as well as a bay of 60,000 sq ft that is fully racked. It has lighting and sprinklers already fitted. And then there is Schroders’ 247,000 sq ft Tetris A40 warehouse which comes with expansion land of three acres. Joint letting agents Savills and King Sturge are quoting £5.95 per sq ft.
The dearth of good quality stock is not going to get any better fast. In King Sturge’s most recent Industrial & Distribution Floorspace Today report it says that the level of speculative development under construction within Greater London has been in a steep downward trend since mid-2007.
Indeed, according to Jones Lang LaSalle’s report supply remains in check: “No new projects were initiated [this year] and there is no significant development under construction in the region for the speculative market.”
Despite the growing shortage, at present says Andy Hall of Knight Frank: “There is still a significant amount of void which will have to be taken up. Incentives are in excess of what the landlords want to give away and these will have to come down before rents go up.”
According to Jones Lang LaSalle’s report rents remain under pressure: “The slowdown in core markets prompted landlords to reduce asking rents back in 2009 and this has continued in the early months of 2010 with further reductions between two to five per cent. Moreover, generous incentives are still available.
In light of the recent deals and growing demand Gus Haslam of King Sturge says: “Rent-frees are perhaps starting to harden for good quality buildings, those that remain problematic, incentives are generous.”
Ben Wiley of Strutt & Parker says: “After a slowdown in transactional activity over the past two quarters of the year there is quite a lot happening now indeed there has been a rise in pre-let activity. In some locations, where there is a lack of supply, we are already starting to see occupiers become more competitive.”
Talking about the larger enquiries, Dominic Whitfield of Savills says: “I think it has dawned on the larger occupiers that pre-lets are the only way forward at the moment.”
There have been a number of pre-lets in the market to date with more rumoured to be on the way. Knightsbridge retailer Harrods is close to closing a deal on a 320,000 sq ft pre-let at SEGRO’s 24-acre Origin site in Park Royal, West London. The deal is thought to have been secured off a rent of £12 per sq ft with a long lease. Ken Butcher of SEGRO, while not naming the potential occupier at Origin, says: “This proves that there is very little if any sites capable of taking that size of building. If the deal goes through there will be a six acre site available, which could accommodate up to 120,000 sq ft of space.”
A planning application for Origin is due to be submitted before the end of the year. Letting agents are King Sturge, CBRE and Dohertybaines.
Other pre-lets thought to be in the pipeline include Costco securing 150,000 sq ft at Keir’s 13-acre Western International Park in Hayes which is being marketed by Knight Frank and Cushman & Wakefield. Freight forwarder Schenker is thought to be on the move with a 130,000 sq ft requirement on either SWIP and Canmoor’s 240,000 sq ft Blackburn Trading Estate, Northumberland Close, which is being marketed by Dowley Turner and SEGRO’s 11-acre former Gate Gourmet site on Syclla Road which could provide up to 240,000 sq ft through letting agents DTZ, Colliers and De Souza.
Although a bit further off, other sites which could potentially take larger sheds include Developer Goodman’s Slough International Freight Terminal. The developer has submitted an outline planning application on the 215-acre site it acquired from Argent two years ago.