Runway to security

Without a second runway, Gatwick could be doomed to decline – and Crawley with it. But BAA is committed to a 20-year-old agreement not to expand significantly – a position which many question. Jon Neale reports Gatwick is the busiest single-runway airport in the world – and it is about to get busier. BAA’s Gatwick Airport Sustainable Development Strategy envisages that passenger numbers will increase to 40m by the end of the decade, an increase of 10m on the 1999/2000 figure. The South East Region Airport Study, published last year, asserted that additional runway capacity would be needed in the South East owing to a growth in passenger numbers. An expansion at Stansted and a new airport at Cliffe in Kent were both cited as possible solutions. A judicial review brought by Kent and Medway councils recently ruled that the government was wrong to rule out an extra runway at Gatwick, despite a 1979 legal agreement between BAA and West Sussex council precluding such expansion until 2019. Nevertheless BAA remains committed to the agreement. “The essence of our development strategy is that we will remain a single-runway, two-terminal airport,” explains Tim Rockwood of BAA Gatwick. “Extra facilities will be provided within the existing airport boundary.” Series of commitments Terminals and cargo facilities will be expanded and additional apron areas, piers and hangars will be constructed. BAA also has a series of 143 commitments with topics ranging from environmental impact and air noise to employment and land use, of which 36 are formal section 106 agreements. “It is almost revolutionary that we are not getting planning permission in return for obligations,” Rockwood says. “It was a response to concerns from local authorities regarding the ongoing incremental growth of the airport.” Peter Feltham of Crawley business association CADIA is critical of this stance. “The agreement did not forecast the rate of growth. It’s reasonable for that to be acknowledged and a new agreement put in place. CADIA will definitely be lobbying for Gatwick to be included in the runway requirements for the South East,” he says. In support of the airport’s candidacy, he points to Gatwick’s transport links and less intrusive noise footprints. “If we say the current passenger numbers are 30m, then it is operating at 75% capacity,” Feltham says. “Forty million is the absolute capacity as accepted by the airlines. As usage moves towards 100%, operators wishing to expand have to go elsewhere – indeed, they may even move the whole operation elsewhere.” Equal terms He adds that Gatwick’s decline is a realistic possibility if it cannot compete on equal terms with other airports in the South East. Agents are unequivocal about how important Gatwick is to the Crawley market. “Gatwick and Crawley are one and the same thing. Crawley relies on Gatwick in terms of everything from aircraft spares to catering and support,” Vail Williams’ Andrew Osborne explains. Some agree that expansion elsewhere would be an issue. “The growth of regional airports is a major factor over the next 10 years. The importance of Gatwick to Crawley cannot be underestimated,” says DTZ’s Charles Howard. He adds that he has a requirement in which the client has a direct link with the airport – it manufactures flight simulators. Both First Choice and Virgin are based in the town, but BA has scaled back its presence at the airport since 9/11 – although sources insist that this would have occurred anyway. Many occupiers choose the town because of the quantity of links with North American cities as well as its location within the motorway network. Still, Crawley could have the critical mass to thrive in its own right. Indeed, some commentators point to problems of high staff costs and low availability – a result of Gatwick “sucking in” the available North Sussex labour pool. Crawley offices The town’s diverse occupier base has cushioned it from the downturn flowing from the TMT sector Although demand has dropped significantly over the past 12 months, office agents do have at least some reasons to be cheerful. On the one hand, the town has a diverse occupier base, insulating it from the shock of the TMT downturn. On the other, rents are low compared with markets further west, and the pipeline supply is limited. “Vacancy rates are currently 11.5% compared with 8.7% at the beginning of 2002. Interestingly, the main reason for this increase is completion of new build, not secondhand space coming back onto the market,” says Adam Godfrey of Stiles Harold Williams. The Sussex town has seen the completion of four schemes in the past two years – Explorer, Belmont House, Pioneer and 1 and 3 Pegasus Place – a total of 115,250 sq ft. According to Godfrey, grade A availability in the town at the end of last year was around 120,000 sq ft – 30% of the total. This tally will be increased by the completion of BAA Lynton’s 85,250 sq ft (7,900m2) speculative scheme, 2 City Place, in spring this year. “There is nothing else new in the pipeline at all,” says Knight Frank’s Will Foster. He adds that, at worst, there is two years’ supply of grade A stock. According to Godfrey, although take-up last year was at its lowest level since 1996, at only 120,000 sq ft, average annual take-up over the past five years has been 230,000 sq ft. “I could envisage a situation of undersupply in terms of new buildings,” he says. This low take-up has taken its toll. “Most of the pressure in rent terms has resulted in long rent-frees,” Foster asserts. “Crawley headline figures have increased.” Optimism has increased somewhat in the town as a result of the letting of 12,800 sq ft (1,200m2) at Pegasus Two on a 12-year institutional lease to construction firm Rokbuild. The company recently purchased Eastbourne-based Llewellyn and intends the office to act as a more accessible headquarters for its acquisition. Sources believe the rent achieved was around the £23.30 per sq ft level, with Rogers Chapman and Maxwell Brown acting for developers McKay Securities. “It’s obviously great news to see take-up at one of the new buildings, and it certainly endorses McKay’s decision to build,” Foster says. “However, I wouldn’t say that is the new market rate for the Manor Royal Estate. There was no acquiring agent for Rokbuild, and I think that is reflected in the level of the deal – although not necessarily to a great extent.” The previous significant deal in the town was the letting of 16,800 sq ft (15,600m2) at Explorer to Grant Thornton at £20.50 per sq ft. Industrial: Plenty of space, but the wrong type Crawley’s industrial market isn’t giving local agents many reasons to smile at the moment. As in so much of the South East, high rents, labour costs and employment deter potential occupiers. The Manor Royal Estate, once home to industries relocated to the New Town from the capital, is slowly but surely becoming an office location. “Basically, the Crawley industrial market has been relatively quiet,” says Nick Cook of Knight Frank. “Traditionally it has featured high office content units.” He explains that most demand is from the B8 storage and distribution sector, which has no need for significant office space within a unit. Vail Williams’ Andrew Osborne agrees: “I amcurrently marketing units of 53,000 sq ft and 31,000sq ft, both with high office content. Unfortunately, that configuration is not what occupiers want, so we are looking at splitting them.” Osborne adds that there is an oversupply of larger buildings and an oversupply of tenants seeking15,000-20,000 sq ft. Graves Jenkins’ Dave Beasant agrees. “There are around 10 units in the 30,000-50,000 sq ft range. However 3,000-4,000 sq ft units are going very quickly,” he says. Cook asserts that demand for larger units is so low that landlords are prepared to do deals at significantly less than the quoting rent. At Diamond Point, 96,000 sq ft was let to Illinois Tool Works late last year at £5 per sq ft. Meanwhile, quoted rents at the 65,000 sq ft Dialog Scheme, which was completed in August last year, are £8.50 per sq ft. Gatwick/Crawley key availability Crawley has seen four new schemes in two years Property Town Size (sq ft) 2 City Place Gatwick 85,250 1 & 3 Pegasus Place, Gatwick Road Crawley 21,300& 16,750 Explorer, Fleming Way Crawley 21,850 Belmont House, Station Approach Crawley 38,400 The Manor, Manor Royal Crawley 28,900 Pioneer, Crawley Business Quarter Crawley 16,950 Astral Towers, London Road Crawley 59,400 Source: Knight Frank Office location The Manor Royal Estate has become an office location Source: Stiles Harold Williams Office availability Four schemes have been completed since 1998 Source: Stiles Harold Williams Office take up Take-up has declined since the last peak in 1999 Take-up has declined since the last peak in 1999