Life in the old shed yet

Available warehouse space is increasing in west London and the Thames Valley but the availability of modern grade A space is not, and with scant prospect of speculative development it will not be long before there is a distinct shortage with the prospect of rising rents.
According to Jones Lang LaSalle’s latest Western Corridor Industrial/Warehouse Market Report, around one million sq ft of industrial/warehouse space was added to the supply in west London, and a smaller volume in the Thames Valley, in the first half of the year. As a result vacancy rates have climbed to 8.3 per cent in west London — its highest level for at least 15 years, and nine per cent in the Thames Valley.
Bridget Outtrim of Jones Lang LaSalle says: “The increase in supply, which has been steadily creeping upwards since 2002, accelerated in the first half of 2009 as companies brought second-hand stock to the market; both west London and Thames Valley saw similar increases of around 19 per cent. Even though speculative development declined in the region it’s inevitable that total supply will continue to rise as businesses consolidate.”
Kevin Mofid of BNP Paribas Real Estate says that the majority of available buildings over 50,000 sq ft are second-hand. “In the Heathrow and west London market at the moment there is 2.4 million sq ft of available property contained in 20 units. Of these, 13 units are second-hand and seven are new.”
Woolworth’s subsidiary Entertainment UK operated two warehouses: Tetris A40, which is owned by Schroders totalling 247,000 sq ft, and Unit 3 Westlands of around 244,300 sq ft and owned by British Steel Pension Fund.
Savills and King Sturge are joint agents on Tetris A40, which has 9.7m eaves, 14 dock level loading doors and a 1,300 kVA power supply. King Sturge is also marketing Westlands 3 with Colliers CRE. Gus Haslam of King Sturge is marketing Jetha House on Springfield Road in Hayes. This totals 49,302 sq ft plus mezzanines of 14,105 sq ft. Joint letting agent is Colliers CRE.
With so much second-hand space on the market, Peter Freeman of Vail Williams sees the buildings from the 1970s/80s as offering the equivalent of new development stock as they benefit from access for 40 ft articulated lorries, and have six metre plus eaves height. “Perhaps the most likely route forward would be complete refurbishments with new cladding etc, as opposed to complete new build, as the older building will have greater parking ratios.
Looking at the development pipeline, everyone agrees that it has all but dried up with only two substantial developments under construction: Canmoor’s schemes in Isleworth and Thunder and Lightning in Park Royal. Standard Life and developer Canmoor bought the 5.2-acre site in Park Royal last year from drinks company Diageo. The £25m scheme will provide two buildings of 63,862 sq ft and 107,772 sq ft that can be combined to form one facility of 170,000 sq ft. Joint letting agents are Gerald Eve and CB Richard Ellis.
There are rumours that ING will speculatively develop its Nexus Heathrow scheme on Central Way in Hounslow. This site has permission for up to 62,000 sq ft of industrial space and work is expected to start sometime during 2010. King Sturge and De Souza are joint letting agents. Bridget Outtrim warns: “Once this speculative development has been completed, grade A supply will diminish relatively quickly and vacancy will be increasingly concentrated in poorer quality stock.”
According to Dominic Whitfield of Savills: “There has been more space let in medium to large size units in the last year than in any of the past three years.”
These include the first letting of Brixton’s (now SEGRO’s) double-deck warehouse X2 at Heathrow. Units 1, 2 and 3, totalling 82,683 sq ft, were let to Airworld Services on a five-year lease. The transaction equated to a rent of £13.61 per sq ft with the equivalent of 12 months rent-free. In addition, Geodis Wilson took developer SEGRO’s 96,563 sq ft LHR1 warehouse in Hatton Cross with a two-year rent-free period at a rent in the region of £11 per sq ft.
Gus Haslam of King Sturge agrees that at present tenants can drive a hard bargain. “There are good incentives to be had but, that said, we are not really seeing headline rents dropping although effective rents are dropping due to the incentives achieved.”
There are signs that space is being taken up rapidly, especially grade A space. There are rumours that another unit at ProLogis Park Heathrow will soon be under offer. The developer has two ready-built facilities of 94,788 sq ft and 67,794 sq ft currently available after letting a unit of 75,310 sq ft to City Link this summer. Scottish Widows’ 120,000 sq ft Unit 1 Heathrow South Cargo Centre is also rumoured to be under offer.
For occupiers looking for units over 100,000 sq ft there is actually very little to choose from. Most recently Tesco won planning permission for a 113,021 sq ft home delivery warehouse in Greenford at Lothbury’s Tera 40 site on Auriol Drive. Another site rumoured to be under offer is Kenmore’s Hayes Exchange at Bulls Bridge, which has planning permission for two warehouse/production units of circa 70,000 sq ft and 90,000 sq ft.
While there has been a veritable plethora of activity close to Heathrow, the same cannot be said for the rest of the Thames Valley. Gazeley still has its 255,825 sq ft G.Park Thames Valley facility to let. Charles Blake of Gazeley says: “It has had a lot of viewings but none have yet to stick.” Letting agents are CB Richard Ellis and GVA Grimley. The Airport Industrial Property Unit Trust has just completed the disposal of Mereside Park, Bedfont to Royal London Asset Management for £16.2 million. John Adcock of CB Richard Ellis says: “There were several institutional bids for this estate and the price is very much a reflection of the estate’s location relative to Heathrow Airport.”