Copyright: David Lawson - Property Week Feb 2001
For most of the last decade the country was swamped with industrial land no-one wanted. Then the economy recovered and demand soared for big boxes to store all those goods people were suddenly buying. The trouble is, other users also began sniffing around sites they would have previously ignored. Brownfield has turned to battlefield for shed-shifters, housebuilders and new-fangled Internet centres, particularly around the hotspots of the south-east.
Why, then, is industrial land more than 30% cheaper in Hemel Hempstead than in 1989? Why have Stoke and Newcastle grown faster than Oxford and Crawley over that period ? And why have values risen by only around 20% in the last two years across the provinces ? Such curious conundrums show that the land market is rarely as straightforward as it might appear. Prices are generally higher in the south-east but those old faithfuls, location and timing blur the picture. For a start, the north-south divide is really a series of meandering fissures.
‘Land values probably vary as much within the M25 as across the UK,’ says Giles Scott of Chesterton. Around Heathrow they can soar to £1.5m/acre – three times those in east London. But that is inevitable when rents can be £12/sq ft and more around the airport compared with £7 on the opposite side of the capital. Telecoms operators and housebuilders are blamed for accentuating these variations. Hayes and Park Royal are showing premiums of up to 30% for sheds sold as internet centres. Those sort of prices factor back to about 10-15% extra on land values, says Roger Saper of Saper Hall, who has negotiated some sharp deals for Chancerygate with telecom hotel operators.
Demand is so fierce that even big spenders like freight forwarders which have driven land values around Heathrow and Gatwick to European records are finding themselves elbowed out. Telecoms operator TyCo has taken a 240,000 sq ft building specifically designed for distributors from Brixton Estate on the ProLogis site near Heathrow for around £12/sq ft. The other two 100,000 sq ft boxes could go the same way as similar firms scramble for space.
Inevitably, there is a temptation to generalise from these deals to set new values across the market. Ever since Rogers Chapman let a standard new box at Airport Gate on Bath Road for more than £14/sq ft to IXEurope last summer, landlords and investors have been adjusting their sights upwards – and rushing their sites to the market. But this is dangerous territory, says Saper. Telehotels cannot function without fibre-optic cables and supercharged power supplies. Not every site so well blessed: in fact, hardly any fit the bill.
Tim Johnson, industrial partner at King Sturge, says land values may have quadrupled since the recession but the jam has not spread evenly. ‘Prices can differ enormously depending on factors like these. You also have to take into consideration variables like contamination and permitted density of development, which can affect even neighbouring sites differently,’ he says.
It is also debateable what impact the Internet is having on values. Rents may be soaring but buying land with the intention of providing web centres is a gamble. ‘Things are changing so fast that these providers will have moved on by the time a site is developed,’ says Saper
Web hosting has an even more limited impact outside the south-east, where it will be confined to a sprinkling of major cities, often in central offices rather than bigger industrial sites ‘It also makes up a very small part of the overall picture and may even be less important in 18 months when the dust settles,’ says Kevin Storey of Healey & Baker.
Housing is the other competing use generally blamed for soaring values. Tighter planning controls have pushed builders onto brownfield sites which would once have been snubbed Again there will be large variations, however. Many brownfield sites are less suitable for housing because they are set apart from facilities like schools and shopping. Local authorities also take differing views on the proportion of social housing, which can have a significant impact on residual valuations by builders.
‘It can be a delicate balancing act,’ says Scott. Planning pressures can work either way. The higher densities favoured by government can encourage housebuilders to pay even higher but parking restrictions or the ability to build above single stories mean more of a site can be devoted to lettable space for commercial development.
The pendulum has swung most strongly towards housing in the south-east, where builders are said to be paying as much as £3m/acre. The figure is almost academic, however ‘That would apply only to prime town centre land.’ says Richard Donald of Savills Research. This would obviously not be in the industrial market. The firm’s price index shows average values of £850,000/acre, which are much closer to industrial prices around the hotspots.
Further away from the extremes of London, the valuation gap is still substantial. In the mid-Nineties residential and industrial land prices were about the same across the Provinces. Now they are around 50% higher, says John Burbage, head of industrial Lambert Smith Hampton.
‘Industry has always come last on the list of potential uses after homes, offices and retail but it is now a no-brainer that residential will be chosen if a site is suitable,’ he says. When Express Lifts put an 18-acre site in Northampton on the market, it attracted ten housebuilders and no industrial bidders, he says.
Not everyone is convinced that alternative users are the main reason for concern , however. Tim Suffield, head of Fuller Peiser in Birmingham, points out that there is very little difference in West Midlands land values, with the best commercial land and average residential sites going for around the same £350,000-£400,000/acre. Only the best residential that goes for £1m/acre and, like the south-east, that is for sites where factories and warehouses would never be contemplated.
It is easy to lose track of the fact that even if competing uses are stripped out, some regions are simply running out of space. The government is concentrating its pre-election energies on a voter-friendly green image which forces housing onto sites once left for industrial developers to revive. But ironically it will soon have to consider releasing green fields for industry.
If the heartland of manufacturing is running out of dark Satanic mills, the rest of the UK must be even more threatened., says Suffield. Shortages across the Provinces would weigh heavily on a sector hit badly by the strong pound, high interest rates and the crisis in car and steel manufacturing. Rising values would pull away the safety blanket for occupiers driven out of high value areas like the south-east and come home to haunt Labour in its traditional heartlands during a second term as much as housing has done in its first.
Meanwhile, investors might look outside the overheated markets of the south-east and muse on Mark Twain’s famous aphorism: ‘Buy land. They've stopped making it."