Heathrow could benefit from airline crisis

Copyright: David Lawson - Property Week  2001

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Problems besetting airlines and technology companies could yet prove a Godsend for most occupiers around Heathrow. Doors are opening to firms that have struggled for decades to compete for space with these fading glamour queens. And in the background hovers the prospect of a revolution if Terminal Five wins approval.   A sense of shock hangs over the area following terrorist attacks on the US and the impact on airline profits. Some cuts have gone deep, such as Aer Lingus’s decision to market its 15,000 sq ft freehold building on Staines Road for £23m But this presents a false picture of a much broader market.

  ‘Apart from BA, which has been pulling out for some time, airlines are not heavy  space users,’ says John Izett of Rogers Chapman. There is certainly a knock-on affect on smaller firms which service the airport such as inflight catering. But it is not universal.  His colleague, Christine Banbury, points to one caterer doing bumper business because it supplies the terminals, where passengers are buying more because they are held in queues longer because of tougher security checks.

  Freight is also proving a more resilient traveller than people. She says the shed market has seen hardly any impact, so supply and demand are still well balanced.  New technology firms have felt the most pain and that is worrying, as they have accounted for more than 70% of takeup over the last few years. Their discomfort has also had a far greater impact than job losses appear to justify, because many took more office space than they needed, expecting the dotcom boom to go on indefinitely.

  But their  pain has been others’ gain. Portal Software was asking a premium over the £31.50 passing rent for a sub-let of a floor at 7 Bath Road earlier this year. But this is likely to evaporate when details emerge of  a deal by MMO2, the wireless division floated off by BT, for the whole building.  That picture will be repeated lower down the scale for the broad base of smaller businesses which make up an even greater proportion of the market than technology. New figures from Rogers Chapman show that take-up has dropped by 42% in the last six months across west London but while demand has tailed off at the top end, smaller businesses are still growing. ‘We are still under pressure to find space,’ says Izett.

    Banbury points out that in the last recession, landlords held firm on rent cuts but now it is the tenants making decisions over sub-lets. ‘They just want cashflow,’ she says.   Rents have fallen from more than £30/sq ft to around £25/sq ft for prime space  and to less than £20/sq ft for secondary offices. Lease terms are also up for negotiation, with the five-year breaks last seen during the Nineties recession making a return.

   No-one knows how long this how long this pain-gain jockeying will continue. The general feeling is that Heathrow remains better placed than most to resist not just the technology crash but the gentle subsidence  of the general economy, according to Lambe4t Smith Hampton’s latest M4 Corridor report.  Even a shock decision to refuse the new terminal would not shake that. And if it does go ahead, the benefits could be staggering. It is not just the huge influx of extra passengers but the associated transport improvements which will percolate down to help smaller businesses, says Kevin Cooke of Vail Williams.  ‘Access has always been a major issue but now we are faced with benefits like new train links to Reading, Waterloo and Paddington,’ he says. Losers may be grabbing headliners around Heathrow but they could yet be outweighed by winners.