Is there enough space for cargo at the UK’s airports? Liza Helps investigates.
Goods worth more than £116 billion were shipped via air through the UK’s 24 international airports between the UK and non-EU countries in the last year. The total tonnage of freight and mail carried from UK airports in 2012 reached 2.5 million tonnes, an increase of 0.4 per cent on 2011.
All of it will have been handled by freight forwarders, airlines, ground handlers and other support services, and all of these have to be housed in or close by the airports themselves.
The majority of goods will have been flown to and from Heathrow which accounts for more than 64 per cent of all airfreight in the UK – it is hardly surprising then that this logistics location is the most expensive in the UK.
In fact according to DTZ’s “Global Occupancy Costs Logistics 2013” report Heathrow Airport is the most expensive place in the world if you want to rent a warehouse with total costs, including the rent, taxes and property services, sitting at some US$313 per square metre a year.
“The reason for the high costs is the extremely limited amount of stock available,” says Alan Holland of SEGRO, which is joint partner with Aviva Investors of the Airport Property Partnership (APP) the only landlord with business space providing air-side access at Heathrow.
“Rent levels are at a premium airside; twice as much as an off air location about £24 per sq ft – basically office rents for industrial property.”
For landlords and indeed other investors airside property is extremely attractive as the demand is captive and active in terms of enquiry levels with an inherently limited supply.
Warehousing airside at Heathrow is basically made up of cargo facilities developed in the 1960s, including the 1.2 million sq ft Heathrow Cargo Centre nick-named the “horseshoe” which some have said is no longer suitable for modern logistics processes.
Holland says: “We are looking at the eventual regeneration of those sheds over the medium term but developing, or indeed refurbishing the stock, as part of an operational airfield is not quite as straight forward as knocking them down and starting again.”
Air-side facilities, essentially inside the security fence of airports, consist of a cargo transit shed where cargo is received into UK from abroad, processed and packaged and passed on to either business or retail, or to the overseas market. In real estate terms these are typically most efficient around 40 – 70,000 sq ft. They need to be reasonably large for economies of scale.
With such a shortage of space airside many freight forwarders look to acquire facilities in the surrounding area. Bridget Outtrim of Jones Lang LaSalle says: “Approximately 700,000 sq ft of industrial units were acquired near Heathrow in the six months to the end of June 2013 which follows hot on the heels of a strong second half in 2012.”
But even in the surrounding area space is in short supply. Outtrim says: “Good quality Grade A space is in very short supply. 2012 was the lowest recorded level of new stock available for 17 years.”
There is only one existing Grade A building over 100,000 sq ft available at Heathrow on SWIP’s South Cargo Centre though there are a number of properties between 25 – 65,000 sq ft through APP including the soon to be refurbished Unit 2A Polar Park totalling 37,918 sq ft.
Shortages are forcing occupiers to look at build-to-suit options where rents have topped £15 per sq ft in the best locations such as SWIP’s pre-let to Dnata on Northumberland Close, a unique location close to the cargo terminal area. APP has a two acre site adjacent, known as The Portal site, which could take up to 38,000 sq ft on a build-to-suit basis.
There is only one way in which more warehousing space could be developed at Heathrow – that is if there was a third runway. Holland says: “Additional runways would create an increase in air related warehouse development [at the airport].”
An additional runway or even two at Heathrow is a politically charged idea and is part of an in depth inquiry by the Davies Commission set up by the government to look into the UK’s airport capacity needs and how best to meet them.
For those freight forwarders not constrained to Heathrow the opportunity to take space in less expensive locations at regional airports must be considered. Indeed many regional airports have been submitting plans for their own expansion and this includes ensuring that there is space for logistics.
Manchester Airports Group which owns East Midlands Airport, Stansted, Manchester City Airport and Bournemouth is investing heavily in cargo space. It has secured planning for a £100 million World Logistics Hub totalling some 1.4 million sq ft as part of the £650 million Airport City Manchester scheme, the first of its kind in the UK that will compete for international business against similar airport city projects in Amsterdam, Barcelona, Düsseldorf and Copenhagen.
The new logistics development, comprising small and medium warehouses ranging from 7,500 sq ft to 200,000 sq ft, on a 91.2-acre site next to Junction 6 of the M56 and close to the existing airport freight area, will more than triple the area of Manchester Airport’s current World Freight Terminal. The existing 667,430 sq ft facility is currently home to five cargo-handling companies and around 50 freight forwarders.
Not quite on the scale of Manchester Airport, Stobart Group is pushing forward with its own airport cargo centre in Carlisle. The company has secured planning permission for a 374,000 sq ft distribution centre at Carlisle Airport in Cumbria.
Andrew Tinkler, Stobart Group chief executive, says: “The freight distribution centre will allow Eddie Stobart to attract new clients while providing the rental income required to develop Carlisle Airport and commence passenger operations.”
Meanwhile Peel Holdings is pushing through with its Robin Hood Airport Business Park in Yorkshire. The 64 acre site adjacent to the Airport could provide distribution units from 10,000 sq ft to 245,000 sq ft subject to planning permission.
Letting agents are Jones Lang LaSalle, Lambert Smith Hampton and CBRE.