According to various property pundits speculative development is back in vogue. Tunde Adegbemile of DTZ Debenham Tie Leung says: “There is a resumption of speculative activity in the Heathrow market – on our radar 650,000 sq ft of it in buildings of 50,000 sq ft plus.
“The last major event which altered the dynamics of the air industry and actually ground [speculative building] to a halt was 9/11. Since then, there has been period of inertia with a resumption on confidence following the start of construction of Heathrow’s Terminal 5.
“Developers will vote with their feet and try to take advantage of the market. With T5 completing in March 2008 there is bound to be a growth in cargo and passenger numbers all of these will have a knock on impact in the air service industry and all of these businesses will need somewhere to go.”
Phil Redding of Slough Estates agrees: “This is the first time there have been so many sheds in the 80 to 120,000 sq ft range – about five or six have been completed in the past six to nine months.
“It’s an interesting trend and there is quite a lot of competition from developers and funds alike such as ProLogis, Brixton and Scottish Widows.”
He continues: “There has been very little built in the last few years; however, several developers and funds have looked at characteristics of the market and have all started at the same time.
“The impact that prime new buildings may have will be to release pent up demand and competition will push rents down.”
It would be nice to think that rents may fall, but, as Redding points out, there will certainly be some pressure on land values with all this competition, and over the next couple of years developers will see ever increasing remediation and decontamination costs for sites as there are very few ready made ones in the area. Added to that there are delays by planning and so on.
“The cost side is very challenging for developers at the moment: the returns are finely balanced.”
Indeed, Kevin Storey of Cushman & Wakefield says that landowners may well decide to look at alternative uses rather than employment to realise as much as possible when they sell.
“Despite there being not much manufacturing/industrial most people [in the area] are going to work in services sector and having to commute that much more.
Residential is much more of an easy ticket especially on green field sites and landowners could easily double or triple [their asking prices].”
Luckily there are concerns regarding the hijacking of employment land for residential and retail use.
Only recently a planning framework to protect Park Royal, the UK’s largest industrial site from housing development has been put in place.
This effectively prevents houses being built on the 1,725-acre estate which currently houses 2,000 businesses accounting for some 40,000 jobs. The most acquisitive developers in the market are not surprisingly Brixton and Slough Estates.
According to Peter Freeman of Vail Williams, these have been particularly busy securing sites with any adjoining land to their existing portfolios.
At the end of last year Slough Estates teamed up with BAA Lynton and Morley Fund Management’s Airport Property Partnership to acquire 50 acres at Argent’s London International Freight Exchange site outside Heathrow airport.
The site comprises a 150,000 sq ft logistics centre let to Heathrow Airport and an aggregates facility let to Foster Yeoman.
Argent, which was advised by Gowers, still retains a further 215 acres at Colnbrook.
There are existing commercial consents on the 50-acre site at Colnbrook despite being designated as green belt land.
A classic buy for Brixton says Storey was the 24-acre former Guinness Brewery site in Park Royal where Brixton will have paid £47m in total consideration – a shade off £2m an acre.
The site known as Origin could accommodate a single distribution warehouse up to 350,000 sq ft. However, planning has yet to be finalised.
Brixton’s letting agents are CB Richard Ellis, Colliers CRE and Mills & Wood.
Freeman says: “There are still a number of sites with consent for development that have not been speculatively built. For example: Matador in Hayes, Express West in Southall, and Airport Works in Hayes.
“So there are still more opportunities for pre-lets, but most of the larger requirements around Heathrow often do not wait for a design and build and look towards the spec built units.”
With that in mind, Slough Estates is on site with LHR1 totalling 95,800 sq ft, which should complete shortly.
It has 10 metre eaves and a three-storey office to the front; there are six dock and four level access doors and is being marketed at a quoting rent of £14.50 per sq ft through joint agents DTZ Debenham Tie Leung, Jones Lang LaSalle and de Souza.
Bonnie Shearer of DTZ Debenham Tie Leung says: “Slough Estates has a belief in this area there have been in excess of 30 enquiries in the market for a building in this size range.”
Freeman says: “There are currently a number of larger enquiries (larger being 50,000 sq ft plus in the market) so the market is looking healthy for the larger properties.”
AIPUT is about to start on site for the new Heathrow South Cargo Centre, at Hatton Cross. There are five units under construction. The main unit is a prominent 122,000 sq ft warehouse fronting the A30, which will have 12m eaves; eight dock and four level access doors, separate car parking and yard area.
The other units are a terrace of three 9,000 sq ft units and an 18,000 sq ft unit, which will be marketed through Vail Williams and CB Richard Ellis.
Developer Brixton is working on the UK’s first multi-storey warehouse, which will see practical completion in the autumn.
The X2 warehouse development sits on a 6.5-acre site on the Great South West Road in Hatton Cross and will total 241,000 sq ft. It will have full HGV access to the upper floors. Letting agents are CB Richard Ellis and King Sturge.
ProLogis has started speculative construction work on three industrial / distribution units at ProLogis Park Heathrow, its 35-acre site on Stockley Road in Hayes where it will have units of 67,794 sq ft, 73,996 sq ft and 94,788 sq ft. Joint agents are Knight Frank and Savills.
Slough Estates is also building in Feltham Vector Park, which is a multi-unit estate.
Brixton also has space in Feltham with its Spaceway scheme of four units, which was completed last year.
If speculative builds were hard to come by then there is always the second-hand market and even refurbishment possibilities to fill the void.
Brixton paid £5.95m for a 44,000 sq ft vacant warehouse at Horton Road, Poyle, Heathrow. It is carrying out a refurbishment of the unit and offer it to the letting market at £10.50 per sq ft.
It has also acquired the 230,000 sq ft Poyle 14 unit, which lies close by.