Heathrow rental growth expected in the short term after strong 2012 take-up – Savills

Take-up of Heathrow industrial property last year was the highest since 2000, says Savills, which signifies the importance of the Heathrow logistics market, its re-emergence from the downturn – and how occupiers still see Heathrow as a key location, despite the continued speculation about its future role as a UK hub for air travel.

In the fourth quarter of 2012, more than 360,000 sq ft was transacted in the Heathrow market, which represents a jump of 74% above the quarterly average, Savills notes. Over the past 12 months, 1.4m sq ft has been transacted (up 12% year-on-year), the majority of it Grade B quality. Take-up in 2012 was dominated by larger-size deals, with the 25,000-50,000 sq ft band no longer the leading sector.

The rise in take-up and the historically low levels of speculative development mean that availability has continued to decline, particularly for property of 25,000 sq ft and above, says Savills. There is just over one year’s supply of existing, immediately available Grade A stock on the market, the firm adds. Savills puts the vacancy rate at 9.6% overall. The reduced availability and the minimal amount of sites ready for development are set to combine to cut the number of deals completed in 2013, as occupiers become unable to satisfy their requirements. Deals will, however, be done where occupiers are prepared to pay a premium to take pre-lets in prime locations, the firm notes.

Investment demand for logistics property in the Heathrow area remains strong, as investors are enticed by the prospect of adding value through regears and extensions to existing properties. There is significant demand for long let, good quality distribution warehouses to let on good covenants with fixed uplifts, Savills says, and the prices achieved for this type of property are becoming increasingly competitive. Single- and multi-let estates in prime locations are also highly sought after by investors, even where the income is shorter, if the property has strong fundamentals such as good location and a strong tenant line-up. The occupational market in Heathrow has a strong rental growth forecast of 3.9% over the next five years, the firm points out, compared with 2.1% for the South East region as a whole over the same period.