Everyone is getting in on the act
There has been a growing trend for the redevelopment of office space into industrial particularly in the Home Counties of Berkshire, Buckinghamshire, along the M4 corridor but this is rapidly expanding.
By Liza Helps, Property Editor, Logistics Matters
SINCE THE beginning of the year Logistics Matters has reported on eight schemes, all are aiming at the small to midbox market covering locations such as Coventry, Rugby, Wolverhampton, Aberdeen, Hemel Hempstead, Stevenage, Crawley, Watford and the only one down the M4 corridor in Reading.
What is driving this activity? In short there is a move by investors to seek highly reversionary – value add – assets where they can secure high returns compared to building speculatively or indeed buying a ready-made facilities. Basically, they reckon they can make more money and secure higher returns this way.
And SMEs and industrial and logistics occupiers seeking regional and localised small to midbox space are likely to be the beneficiaries.
Redundant offices located in business park settings with good access to the local and regional infrastructure in the larger towns, with large car parks seem quite literally to be low hanging fruit for investors as the properties are often cheap to acquire, already have established employment usage and as a result are less contentious and less time consuming to take through the planning process.
Indeed, many planning committee members who might conceivably reject green field development of similar schemes, actually welcome redevelopment opportunities to sites and properties that are otherwise derelict eyesores within their districts.
It does help that the smaller nature of the properties being brought forward and the wider occupier profile of such small to midbox facilities include retail, ecommerce, life science, research and development, small manufacturing as well as local and family owned in addition to distribution and logistics businesses so diluting that common knee jerk response to reject logistics development out of hand.
While it is unlikely to release the much needed large swathes of small to midbox space so desperately needed – which according to Potter Space’s Big Things in Small Boxes latest annual research requires some 63 million ft2 of sub-100,000 ft2 space to unlock – it is a step in the right direction.
It is perhaps due to this level of suppressed demand calculated to be some 38% UK-wide that makes the redevelopment of these former offices into that wider industrial space viable at a time when build costs and cost of finance are still elevated.
Knowing that there is a decades old pent up level of demand in an area for the space you are about to develop further de-risks the whole nature of the project and makes it so attractive.
It is hardly any wonder a growing number of investors are looking to dip their toes in. Kier Property has secured some £400 million for urban logistics development from Realis, the equity investment platform of South African bank Investec, while it is unlikely that all £400 million will be spent on office to industrial redevelopment, the joint venture’s first foray will see the 100,00 ft2 The PeopleBuilding office facility in Hemel Hempstead turned into an 87,0000 ft2 BREEAM Excellent industrial scheme on the 4.4 acre site.
Discussing the reasons behind the move, Investec, Head of Real Estate Equity Investments Yon Papageorgiou, said: “The UK urban logistics sector continues to benefit from compelling structural tailwinds, namely an increase in onshoring and e-commerce penetration, whilst the erosion of industrial land in major UK cities is reducing supply and underpinning attractive rental growth.”
