As John MacRae discovers, Heathrow Airport still defines the shape of Hillingdon’s property markets.
“This is what they called ‘blood bath alley,” said David Cuthbert of Conrad Ritblat Sinclair Goldsmith, pointing from the car as it moved along Bath Road on the north side of the world’s busiest airport.
Six speculative office buildings, offering up to 50,000 sq ft (4,645m2) each, all reached the market within a year of each other in 1990-91 as demand went into free fall. But it is a measure of a strengthening market that, within the past 18 months, most of the space has been taken – although the original quoting rents of up to £28.50 per sq ft (£306.78 per m2) have now sunk to the mid-teens, plus incentives.
The Heathrow perimeter is not a major office location, mainly because of the industrial environment and inadequate shopping and public transport. Indeed KLM is the only major airline to have its UK headquarters near the airport, rather than in the West End.
Nevertheless, there is still demand from occupiers who have to be near the airport. Richard Ellis and Rogers Chapman are quoting £18.50 per sq ft (£199.13 per m2) on behalf of Threadneedle Properties for 1 Nobel Drive, a 38,482 sq ft ( 3,574m2) self-contained headquarters building in front of Heathrow Point – the building that British Airways took to release more valuable airside space.
Hotels benefit from being near the airport as well. In this area of Bath Road there are a number of hotels including the Ibis, Forte Post House, Sheraton Skyline, Radisson Edwardian, Ramada and the Heathrow.
But it is still Stockley Park which gets most attention and it is now expanding. In April, Stockley Park Consortium submitted a detailed planning application for a 92,705 sq ft (8,613m2) building designed by Arup Associates and to be known as 3 The Square. The building’s floorplate is cruciform in shape, with four diagonally opposed wings extending from a central core. Each of the building’s four storeys is about 23,000 sq ft (2,137m2). DEGW claims that the floorplate design is one of the most efficient possible, with a user efficiency rate (net usable to net lettable) of 88%.
Sole letting agent Jones Lang Wootton claims that the building also resolves many of the problems faced by occupiers of traditional deep-space buildings. Although each wing is 59ft (18m) wide, atria and the design of the external glazing allow excellent natural light levels.
No 3 The Square will be the focal scheme in the second phase of Stockley Park. Six buildings totalling 355,000 sq ft (32,980m2) are planned. Stockley Park will ultimately provide 2.3m sq ft (213,670m2) of offices, of which over 1.5m sq ft (139,350m2) is already built and occupied.
There has been a degree of movement among high-profile tenants. Currently, BP Exploration wants to move from its 120,500 sq ft (11,194m2) Foster Associates-designed building at 4 and 5 Longwalk in order to consolidate its activities in Sunbury. BT is apparently in the frame to take over the lease and the rent of about £26 per sq ft (£279.87 per m2). Richard Ellis is advising BP Exploration. It is rumoured that more space will be placed on the market shortly by another tenant.
On the south side of the airport, London & Metropolitan is marketing the final building in a successful redevelopment scheme at 1 Dukes Green, Faggs Lane, Feltham. The air-conditioned building extends to 47,600 sq ft (4,422m2) and joint agents Jones Lang Wootton and Rogers Chapman are quoting a rent of £19.50 per sq ft (£209.90 per m2). The freehold is also available.
A nearby greenfield site has consent for a superstore, which Tesco won at appeal, but a development timetable has yet to be announced.
All this takes place in a market which, according to a recent report by Richard Ellis, still commands the highest industrial rents in the UK and one of the highest office rents.
Depending on the size and length of lease, the range of rental values in the industrial/warehouse sector tends to fall in the following brackets: inside the airport perimeter – £10 to £15 per sq ft (£107.64 to £161.46 per m2); immediately outside the perimeter – £8 to £10 per sq ft (£86.11 to £107.64 per m2); within 1 or 2 miles of the airport – £6 to £8 per sq ft (£64.58 to £86.11 per m2).
RE claims that the only oversupply in the industrial sector is accounted for by schemes slightly removed from the airport, which developers/investors incorrectly assumed would attract Heathrow users. “This has proved not to be the case and emphasises the fundamental requirement for these users to be located at or very close to the airport,” the report comments.
The office market is similarly driven by users which need to be located close to the airport, for instance customs, immigration, airlines and airfreight agencies. There has been an oversupply of new offices and this has had a major impact on rents. But total available space has fallen from 1m sq ft (92,900m2) in 1991 to 500,000 sq ft (46,450m2) at the end of 1994.
RE defines a three-tier office market in the Heathrow area:
- Offices within the airport perimeter, where rents are in the £30 to £40 per sq ft range (£322.93 – £430.57 per m2).
- Space immediately outside the airport occupied mainly by airport-related companies. Rents are in the £14 to £16 per sq ft range (£150.70 to £172.23 per m2).
- Offices away from the immediate Heathrow area. Rents vary significantly. For instance, in Hounslow the rate is £12 to £14 (£129.17 – £150.70 per m2), whereas £24 per sq ft (£258.34 per m2) can be achieved at Stockley Park.
The market at Heathrow is dominated by BAA, which owns or controls most of the airside land. It charges premium rents, particularly for bonded transit shed space in the 1m sq ft (92,900m2) Cargo Centre. This market strength is heightened because of the surrounding green belt and planning policies which seek to contain airport-related business within the airport perimeter.
After a virtual rent strike by some tenants, BAA introduced its “fair deal” charter in January. This includes a promise to freeze rents in the airport terminals until 1996.
The main beneficiaries of the fair deal will be airlines, handling agents, customs and immigration, the police and cargo companies. Rents for retail space and restaurants will not be affected since these are largely on turnover rents. Besides allegations that BAA was abusing its monopoly position, tenants also objected to secrecy surrounding the management of the estate. Now BAA is promising to publish full details of available accommodation, including price. Statistics on vacancy and take-up rates will also be published regularly.
A particular criticism of BAA – one of Britain’s biggest commercial landlords – was that it moved its own staff into 100,000 sq ft (9,290m2) of off-airport offices to take advantage of less expensive space and to relet its airside space for a premium rent. BAA now says that all rents will be monitored to ensure consistency between on- and off-airport property markets.
The fair deal policy also includes a £19m refurbishment programme and a plan to provide an extra 1.5m sq ft (139,350m2) of new space over the next three years. Rent increases in terminals will occur only if BAA meets five strict performance targets, the company says.
In April, BAA agreed with British Airways to restructure long-term leases held by BA over 224 acres (90.65ha) of BAA land to provide BAA with a better income flow and to release 39 acres (15.78ha) on the east side of the airport. The land will be used by BAA subsidiary Lynton to develop bespoke buildings for airport customers.
Two important off-airport industrial development sites are on the market through Richard Ellis. The 7.4 acre (2.9ha) Norman Hay site is opposite one of the main entrances to Heathrow off the A4 and has planning consent for industrial and warehouse redevelopment.
The metal plating firm is relocating its manufacturing activities to Coventry. Richard Story of RE points out that there are now very few traditional manufacturing industries at Heathrow because of labour and property costs.
On behalf of Esso Petroleum, RE is disposing of a 15 acre (6.07ha) development site at Bedfont Road, Stanwell, close to the south-western perimeter of the airport, and equidistant between Terminal 4 and the Cargo Centre. Partly because of a Roman monument on site, the developable area is about 11 acres (4.45ha).
Story reports that RE is talking to an airfreight company which wants to purchase the site with planning consent for 220,000 sq ft (20,438m2) of industrial and warehouse space. “We are talking about huge land values – well over £1m per acre (£2.47m per ha),” he says.
