A sense of gloom has hung over Heathrow for some years, but many believe that the world’s most expensive industrial location is ready for take-off once again.
Giles Thomas, head of industrial at Strutt & Parker, says: “The market has been really, really quiet, but things are getting better and there is only one way to go – to improve.”
He believes that apart from airport-related activity, there is good potential demand because of its proximity to several major roads.
“It is a really effective place to distribute from but there hasn’t been very much suitable product available. If someone were to develop new buildings I would expect them to do rather well,” he says.
Airport-related activity is the lifeblood of Heathrow, and one hopeful sign for the market is the latest set of figures from BAA for the airport, which show that passenger numbers have grown 6.3% in the past year and cargo volumes 4.2%.
Rob Skelston, director of development and lettings at Brixton, says: “The figures are significantly up on the past couple of years. Importantly, this has been achieved before the catalyst of terminal 5 comes along.”
Nick Cummings, a director of Hines UK, says: “The increase in volume is likely to affect accommodation needs in the next six months to a year. We are optimistic things will pick up.”
Signs of recovery
There are already some signs of recovery. Electrical fittings firm Legrand recently took 32,000 sq ft at Zodiac Park, developed by Easter Developments and Lattice Group Pension Scheme – the scheme is now fully let apart from one unit of 27,000 sq ft.
Meanwhile at Axis Park in Langley, developed by Brixton under its Heathrow Big Box partnership with Prudential, freight forwarders Circle Express and Seko Worldwide have taken 32,000 sq ft and 34,000 sq ft respectively.
Rogers Chapman’s latest Golden triangle report states that in west London and the Thames Valley, 21% more industrial space was let in the first half of 2004 than in the same period the previous year. The most active submarket within the region was Heathrow/Feltham/Poyle, where 280,000 sq ft was let.
The report says demand is highest below 10,000 sq ft and above 50,000 sq ft, and Rogers Chapman expects speculative development of large buildings to take place next year. Divisional director Karen Thomas says that in the past few years, most development has taken place in the mid-size range where demand is weakest.
“We would expect that overhang to start to shift during 2005,” she says. “We do not expect rental growth until 2005, but there may be the odd strong deal for certain types of unit around the airport.”
King Sturge partner Tim Johnson agrees that there is now sufficient demand building up to warrant new development.
“Some of the available stock has already been soaked up, and I suspect we will see a lot of developers beginning on schemes over the next year,” he says.
Brixton is among those with development plans, including at Polar Park in Heathrow, where it has submitted a planning application to build 182,000 sq ft of space and at Spacewaye Park on North Feltham Trading Estate, where it plans to develop 87,000 sq ft.
Slough Estates is planning to develop buildings of 35,000 sq ft, 16,000 sq ft and 14,000 sq ft at Stockley Close, while at Pulborough Way in Hounslow it is planning a building of 28,800 sq ft and a terrace of units from 4,800 sq ft to 7,200 sq ft.
There are also some major schemes working their way through the planning system. ProLogis has applied for permission to develop a 35-acre former MOD site on Stockley Road in Hayes. This would include 615,000 sq ft of warehousing, light industrial and offices, along with 150 new homes.
Kier has submitted a planning application for the Western International Market in Heathrow. This would involve building a new fruit and vegetable market, thereby releasing around 300,000 sq ft of industrial space for development.
Local occupiers
In sharp contrast to the international nature of the Heathrow market, much of the potential demand in Guildford comes from local occupiers. Charles Wood, an associate director of Lambert Smith Hampton, says that this is fairly strong for buildings below 20,000 sq ft. “Freehold demand is good but there is reasonably good leasehold demand as well,” he says.
At Land Securities’ Cobbett Park in Guildford a unit of 7,200 sq ft is under offer, leaving four units remaining out of the 10 that were constructed. The strength of the market has also been shown at Quadrum Park, south of Guildford, where Welbeck Land has sold six units out 14 available, ranging from 2,700 sq ft to 20,500 sq ft. A further three are under offer.
Developers are keen to capitalise on this demand and Montpelier Group is developing nine speculative leasehold units totalling 27,000 sq ft on Guildford’s Slyfield Industrial Estate, having sold a long leasehold interest in an 18,500 sq ft unit to timber supplier AW Champion. The scheme, being developed in conjunction with Durngate Estates, is due for completion in April.
However, such development sites are hard to come by in much of the south-west quadrant, partly owing to competition from other uses.
Peter Richards, a partner of Atkinson Richards, says: “When we had the last boom in office development, anything available for commercial use went for offices as industrial values couldn’t compete. But now the B1 market has fallen away, residential developers are looking at taking what were previously commercial sites.”
One site that did become available was the 130-acre Pyestock in Farnborough, which Astral Developments acquired from security company QinetiQ. Astral is devising aplanning application for the site in conjunction with its partner Prudential.
Chancerygate has also managed to find sites and is building seven units from 12,700 sq ft up to 35,000 sq ft at its Gateway 3 scheme in Chessington, in conjunction with Morley Fund Management. In addition, at Slough Interchange it is developing 14 units totalling 135,000 sq ft, with Helical Bar.
