September 12, 2015
Housing crisis. Record low office vacancy. These subjects regularly make headlines, but they are not the only factors putting a strain on London’s property market.
Industrial land across the capital is rapidly disappearing and there could be a (rising) price to pay.
It is not just big set pieces such as Nine Elms, SW8, and Old Oak Common, NW10, which are being transformed from industrial to residential and higher value commercial uses. Smaller pockets of land are also increasingly being nibbled away.
Ben Wiley, head of industrial agency at Strutt & Parker, warns: “We will simply run out of central commercial space if we go down the route of ever-expanding residential.”
Around 30m sq ft of industrial land has been lost across inner London boroughs between 2000 and 2012 – much of it in the east. But William Bellman, director of industrial and logistics at Colliers International, believes today’s situation is both more acute and more widespread. Colliers says freehold stock availability around Heathrow is at its lowest level for two decades. Savills, meanwhile, reveals a 53% drop in the capital’s supply of larger units since 2012.
Competition for limited sites is putting upward pressure on land values, with high premiums commanded for land with a residential consent. Rents are rising too; in hotspots such as Balham and Wandsworth, SW12, they have risen by between 35% and 40% in recent months.
Some occupiers are being forced to look further afield for space, say agents. Businesses in Nine Elms are looking at Wimbledon and Merton, SW19, and Croydon. The Westfield market is displacing businesses to Greenford and beyond, and inner east London occupiers are moving out to the likes of Basildon and Canvey Island in Essex.
Why does it matter? Knight Frank partner Gus Haslam says: “Many might say ‘so what, it’s only grubby industrial’. But let’s not forget where your bread gets baked, your ready-made meals get prepared and your parcels are processed.”
There are fears such displacement could potentially stymie business growth. Nick Collins, senior director with GVA, says: “Companies that want to stay within London and which are looking to grow may have to put their plans on hold or relocate altogether.”
The Greater London Authority says policies are in place to preserve London’s industrial sector, including the identification of “strategic industrial locations”. It says it will “promote, manage and, where appropriate, protect” these. Development proposals for such sites should be refused, it says, unless they fulfil various industrial requirements or form part of an industrial consolidation process. Local development frameworks should also identify such sites and put in place policies to protect their function. The GLA also has its own plans for “a significant quantum of new industrial development” on a 35ha site alongside the A13.
But there remains a groundswell of feeling that still not enough is being done and that there remains a lack of understanding about the needs of modern industry. A British Property Federation industrial committee has been set up to tackle the issue.
Chairman Gareth Osborn says: “Political rhetoric is all about providing residential. That’s admirable. But we also need to think about how we acquire land for a modern, industrial environment.” Some local authorities are beginning to take a more robust line on retaining employment land, says Richard Sullivan, director in Savills’ national industrial and logistics team. In Hillingdon, west London, planners and SEGRO, new owner of the former Nestlé factory, have agreed the 30-acre site should be redeveloped as a mix of residential and industrial space.
Some speculative development is also taking place across the capital. When the Stockley Park Consortium put the 30-acre Stockley Park Phase 3 in Hillingdon on the market, the scheme, which has had an office consent since 2000, attracted a shortlist of three office bidders and three would-be industrial developers. “We spotted an opportunity to flip the market the other way,” says Paul Weston, head of London and South East Markets at Prologis – the successful party.
The company now hopes to kick-start development of the renamed Prologis Park West London with two speculative units of 113,000 sq ft and 79,000 sq ft.
Late last year Wrenbridge and Palmer Capital completed their 100,000 sq ft Highams Park scheme in Chingford.
Wrenbridge director Jeff Wilson says: “We made a decision that we should build speculatively. We felt occupiers needed a tangible end date rather than going down the route of securing prelets to de-risk it.”
The £15m scheme was sold on to Blackrock following practical completion, and space has since been let to the likes of Screwfix, HSS Hire and Argos.
As he prepares to embark on a similar scheme – Graviton Park in Belvedere, south-east London – Wrenbridge chief executive Ben Coles highlights the challenge in finding sites. “We are only finding one or two quality sites a year – ideally we would be finding 10.”
DHL makes new roots in London
Next year DHL will uproot its 30,000 sq ft operation in Nine Elms, SW8, and relocate to Howard Group’s Tea Shed development in Lewisham, SE14, making way for new residential development.
Andrew Wadsworth, regional estates manager at DHL, says the hunt for alternative accommodation proved challenging.
“In central London you find you are being pushed further and further out to find anything suitable,” he says.
The new 58,000 sq ft facility “reduces the headache”, says Wadsworth. “But it does not completely solve our dilemma. We still require an additional 10,000 to 50,000 sq ft, preferably on one site, but we will have to be flexible.”
Author: Elaine Cavanagh, EGi