When Brixton released its 2006 interim results in September, City analysts shrugged their shoulders in disappointment.
Net rental income was down by nearly 12% to £44.1m, and pretax profit took a 2.1% dip to £129m. Observers had expected more from the self-styled leading industrial property specialist in the UK, and the share price took an immediate 2% hit.
Chief executive Tim Wheeler struck back, saying that recent asset sales, such as the offloading of the £375m Industrious portfolio it acquired last January, accounted for the fall in earnings, and pointing to a £300m development pipeline.
Less than a month after the results, Peter Dawson, managing director of Brixton Investments, and Steve Lee, managing director of its asset management wing B-Serv, are in a bullish mood.
While Wheeler is Brixton’s commander-in-chief, Dawson and Lee are his most senior generals, handling all buying and selling activity and managing the 18m sq ft portfolio. Businesslike yet casual
in open-necked shirts, both men seem determined to get across the message that these are exciting times for Brixton.
The pair emerge for their interview at the firm’s Mayfair headquarters armed with folders full of data including the interim results which they argue highlight the firm’s modus operandi. Central to this is a renewed focus on west London.
“We want to invest where supply is at its tightest and demand is at its highest,” says Dawson, “and that is how we see west London.”
During the interview, they make the case for multi-storey sheds, field questions about whether Brixton is considering mixed-use, and explain what becoming a REIT will mean for the company.
Development pipeline
The company has, this year, reinvested £127m after a sales programme that fetched £520m. The five schemes acquired, with the exception of one in Manchester, are all at Heathrow airport or west London’s Park Royal (see panel). The west London development pipeline is 1.7m sq ft and will be worth £115m excluding land.
It is an expensive strategy. Land at Heathrow can cost £3m per acre and, in August, Brixton spent a cool £45m around £2m per acre on Diageo’s 25-acre former Guinness brewery site at Park Royal. In contrast, the company recently paid around £350,000 per acre for the land at Trafford Park in Manchester.
Agents recognised this high-risk yet high-return strategy. “Since Tim Wheeler came on board, Brixton has been more aggressively setting out its stall in west London,” says Kevin Storey, head of Cushman & Wakefield’s industrial division.
“It’s an area where supply can never increase suddenly,” he continues. “With pressure for other uses, industrial property in the area will always stand you in good stead.”
Giles Thomas, head of industrial at Strutt & Parker, adds that Heathrow in particular is an interesting location, despite the “inherent difficulty” in finding sites there.
Rents have to be high to get value from development. Jones Lang LaSalle research puts Manchester and Birmingham’s headline levels at £5.75 per sq ft. They stand in contrast to west London, which JLL puts at £10.35 per sq ft. Brixton recently achieved £10.90 per sq ft at Premier Park in Park Royal.
Lee says that, rather than follow companies such as Gazeley and ProLogis down the regional supershed route, Brixton is serving a customer base starting at 15,000 sq ft. “Our typical customers will be distributing product into London,” he says. “It’s the local distribution market the white van man.”
Once the current pipeline is developed out, Dawson and Lee confirm that Heathrow and Park Royal will remain the firm’s development location of choice. The company has holdings dotted around the north-west quadrant of the M25, but the two argue that west London is the priority for its war chest, which is around £1bn.
It is a competitive market, as shown by the bidding war for the former Guinness site Slough Estates, Space Properties with Standard Life and British Land with Kier Property all tried to buy the site. But asked whom Brixton is primarily competing against, Dawson and Lee consider carefully before agreeing on a diplomatic reply that there are many competitors out there.
EG throws the name Slough Estates into the conversation, looking for signs of a grimace on either Dawson or Lee’s face. The interim results show that Brixton’s capital value growth, at 6.3%, has fallen behind Slough, at 7%.
“We own 4m sq ft of Park Royal and Slough owns 400,000 sq ft of it,” says Dawson in answer.
Talk turns to the company’s 240,000 sq ft X2 scheme at Hatton Cross near Heathrow, which will start on site in December. This will be the first shed with more than one storey in the UK, and Brixton is selling the innovative idea to a sceptical market.
Lee explains that X2 will have two ramps to the second floor to allay fears that a broken-down lorry on the ramp up might block access to the top floor completely, and says another storey would have been added but for height restrictions.
Cushman & Wakefield’s Storey admits that there is some scepticism in the market, but says that, although the large-scale distribution sector will need to be convinced, the size of the scheme Brixton has in mind might well attract interest, especially in the tight Heathrow market.
At £20m some £5m more than its 233,000 sq ft regular shed at Premier Park it is an expensive venture. Lee says that the aim is to apply the same rent to the first floor as to the ground floor, although it is not yet quoting.
At the former Guinness site at Park Royal, Brixton has hinted that a second multi-storey shed could be built. Wheeler has suggested that an element of residential property might be included at that site too.
Could it be that Brixton, a firm that prides itself on its 100% commitment to the industrial sector, is considering mixed-use?
The suggestion prompts Dawson and Lee to choose their words very carefully, and they play down the idea that the Guinness site could be developed as a mixed-use project. Neither do they rule anything out.
“We bought it with a view to doing a 530,000 sq ft single-storey scheme,” explains Dawson, “but we have time to explore our options and we will consider alternative uses.”
Dawson stresses that if this were to happen, it would mean a land sale to a residential developer. Questioned on whether homes next to sheds could work, he is quick to defend the idea, arguing that the site has existing boundaries with residential developments.
Industrial leader
As an outside observer, Storey says that dabbling in mixed-use projects would not diminish Brixton’s reputation as an industrial leader. He cites shed-builder ProLogis, which sold off part of its Coventry Colliery site to the residential market, as an example.
“Anyone who isn’t prepared to consider mixed-use will struggle to achieve planning consents,” argues Storey.
Mixed-use aside, one big change Brixton is likely to go through is conversion into a REIT next year. Wheeler has made no secret of his desire to take the company down
that route, and Dawson and Lee argue that being a REIT will not change the way it operates.
“We already have an established management model,” says Lee, whose B-Serv division of the company manages the assets and works day-to-day with clients.
The pair’s unwillingness to talk about mixed-use property is unsurprising, given that Wheeler has talked to the press about sector specialisation being a prime advantage to potential REITs.
“We believe regardless of the REIT issue that being sector- specific brings us superior returns,” says Dawson. As a REIT, he says: “The investors would know what they are putting their money into.They would know it was going into South East industrial property.”
Issues such as multi-storey sheds, mixed use and REITs make Brixton well worth watching in the next year. The fact that it has a war chest of up to £1bn and a desire to spend it on west London industrial sites, makes it one of the most significant players in M25 industrial property.
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● Brixton’s total development pipeline is 2.3m sq ft, costing £158m excluding land. ● Of this, 1.7m sq ft, costing £115m, is in west London. ● Key schemes include the 25-acre former Guinness brewery site at Park Royal in west London, bought from Diageo this summer for £45m. It is yet to be masterplanned, but work should begin on site next July. ● Also at Park Royal, work will start on the third phase of Premier Park in November. This will provide 223,000 sq ft of stock. ● At Polar Park near Heathrow airport, work has started on 182,000 sq ft of space, with completion due this month. ● The two-storey X2 unit at Hatton Cross near Heathrow will provide 241,000 sq ft of space on 6.5 acres. Work is due to start before December. ● £520m of property has been sold so far this year, with £127m reinvested |
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Steve Lee Born 1957, Leamington Spa Educated South Bank University. Graduated 1981 BSc Building Economics 1981-98 Various roles leading to group managing director, Bucknall, Austin & Partners/ Bucknall Group plc 2001 Managing director of subsidiary B-Serv Lifestyle Married with three teenage daughters |
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Peter Dawson Born 1971, Bristol Educated Reading University. Graduated 1992, BSc Land Management 1992-97 Jones Lang Wootton 1997 Managing director, Brixton Investments Lifestyle Lives with girlfriend |
