The Savills/CoStar logistics debate - Beds and Sheds and the need for industrial led mixed use

By Paul Norman - Tuesday, March 14, 2017 15:00

The industrial market in London and the UK is booming thanks to a number of well documented factors. In tandem with exploding demand and rent rises London’s industrial markets are facing a supply crisis, a classic recipe for disruption and innovation. To be published ahead of tomorrow's annual Shedmasters meeting at MIPIM in Cannes Savills and CoStar caught up in London with some of the sector’s key figures across a broad repertoire of skills and expertise to discuss how the industry can respond. Read on for a fascinating debate on the latest thinking in industrial led mixed-use as multistorey industrial and ‘beds and sheds’ become a necessity.

Panellists – Alan Holland, Business Unit Director, SEGRO, James Nicholls, Partner, Stephen George & Partners, Michael Williams, investment manager, M&G Real Estate, Tristram Frost, consultant Garbe, Greg Tillotson, regional development director, Barratt London, Levent Kerimol, principal regeneration officer at GLA, David Potter, head of acquisitions, Big Yellow Self-Storage, Rory Brooke, head of economics, planning division, Savills, Oliver Fursdon, director of development, Savills, Kevin Mofid, director of research, Savills, Richard Sullivan, national head of industrial and logistics, Savills, Paul Norman, Editor, CoStar News

CoStar - The combination of increasing populations and the structural change for consumers towards purchasing online has resulted in huge demand for warehouse space particularly in urban environments. However political will and simple land value economics would suggest the main area of development focus is residential. One increasingly discussed option is for greater intensification of existing land assigned for industrial uses. Today we would like to discuss what form those intensifications could take and what barriers this faces. SEGRO has recently released a well received research report entitled Keep London Working focusing on these issues. What were the key findings and recommendation from that report?

Alan Holland, SEGRO – Last week we launched a report, “Keep London Working”, the summary of a piece of work we commissioned with Turleys that has been endorsed by the BPF and we launched it very much as the start of a journey working with the GLA, the London Boroughs and others to tackle what I think we can see in terms of the challenges in London. There are three key findings:

Firstly in terms of reduction in industrial land supply, we have seen land being eroded throughout the capital over the last five to 10 years. The headline is the rate of decline, which is three times faster than has been forecast. So the last time the GLA looked at this they thought a certain level of land would be used by around 2031. In fact, it is being eroded three times as fast so that target is not going to be hit in 2031 but instead has actually been hit now.

Secondly the growth in omni-channel has been well covered. In terms of this growth the report picks up on the nature and quality of the jobs that ecommerce provides. The average wage is twice the national average in this sector.

On the last point there is a perception in the market that commercial vehicles and industrial in general is bad for London in terms of  CO2 and the impact on the environment. But the report works out a contribution to London’s CO2 that is much smaller than we had thought as a percentage. It is 4%.

Turning to the recommendations there are 10 in three buckets. The first is around policy designation; so there is recognition in the London Plan that this is different in policy terms than before and the GLA and others are working hard on that. For example, if you look at the use class orders and at residential the two are awkward in policy terms. So whether it is a B1/D type use class order aimed at urban logistics, we understand London needs housing, but this is about balance.

The second point is around giving the industry a voice. Having an industry voice on a long-term basis is very topical.

Thirdly, and this is a bit techie, we have looked at all the research and no one has actually had a proper look at the amount of strategic industrial land and what is actually being utilised, because there may be a lot more out there than we think. So it is a bit of a call to action.

CoStar – And what has the response been so far?

Alan - Response wise it has been very positive and people have pointed to a number of schemes such as what SEGRO and Barratt are working on at the moment in London where some of these changes are happening, which is good. We need to get it in to the next edition of the London Plan and get this into policy. If we come forward with a proper mixed use major scheme like we have and look for the policy for it then it is not there at present.

CoStar - What forms of industrial led mixed-use can work from a marketability perspective in the short to medium term? Is the market ready for multilevel industrial units, smaller micro delivery hubs, units with goods lifts etc?

Richard Sullivan, Savills – There is a wide diversity of occupier for whom logistics manufacturing and industrial space is looking to meet a need. We regularly see in the big shed world that no one size fits all. I think that is the challenge for us in urban logistics as well. There will be certain types of occupier for whom multilevel and that vertical approach can work, while there are those for whom the horizontal split, where you have some sort of mixed-use residential led development right up against industrial, as with the scheme that Barratt and SEGRO have got out at Hayes. So the challenge will be that different locations will suit different occupier needs and somebody like Big Yellow will have very different criteria around which they could operate in a mixed use environment compared to say a DHL or DPD or an operator such as that.

We are now in an environment in zone 3 and inwards where that conventional space really does not exist any more so I think from our perspective it is going to need compromise on both sides.

David Potter, Big Yellow – It does. Our customers wouldn’t mind if they go down, up or where in the building it is. As long as their accommodation is not a great walking distance from the access point then it is fine.

Rory Brooke, Savills – If I could add to that I think London’s industrial land is at a tipping point to changing towards a new way of doing things. What we are suggesting is that there are a number of tools it would be helpful for policy and developers to have in new masterplanning for industrial areas. The key starting point is not all industry is the same and not all space is the same and some space lends itself to mixed-use and some doesn’t, if you then separate out in what ways it makes itself suitable for mixed use it is helpful. So you can look at whether an industrial space can be part of a mixed-use scheme at a building level, so where you have different floors of the building with different activities, at a block level, where you might have separate buildings that could be multistorey. At a block level they could be compatible with other residential uses. And then at a neighbourhood level where what you are talking about is more single use activity because that is the most appropriate strategy for that type of use.

Linked to this, the second element of our strategy is what is missing at the moment and that is multistorey industrial buildings and there are no examples apart from X2 (the Brixton and then SEGRO development in Heathrow).

It is more about buildings that are designed for vans and small lorries rather than articulated lorries combined with industrial lifts. Also the clients at the moment will pay lower rents. But what will happen over time is the ones that want to stay in central London will pay higher and higher rents and it will get to the point where it  makes it viable to have multistorey industrial buildings – perhaps £20 per sq ft is the threshold. People may not have that as their first choice but after a certain point when there is no viable choice they will say I don’t want to be outside the M25 I will go for this multistorey building and then the market will build up.

Alan – What is the view of the long-term investor? Is there a discount, a risk premium to the yield?

Rory – There is no product there so it is very difficult for people to value it and have confidence that it will work. So there is a real need to pump prime in to get the market established and recognised. There are a couple of ways it could be done. One is with public sector subsidy with it justified as a market failure intervention. Or else if you have a scheme on a big enough area to cross subsidise it with high value development.

David – Is there a view on values as you go up the building? Do you feel it would be diminished as you get higher?

Rory – Well Kevin Mofid (Savills) has done some research on this.

Kevin Mofid, Savills – We did some work on what went on in Asia. What were the market dynamics in Hong Kong, Singapore and the multistorey warehousing there? And as you go up there is a discount because you lose efficiency. So that is the inverse of what would happen in offices. The main issues are speed, ability to service the customer. You are losing on columns and light. The more modern buildings will have equal floor spacing.

Rory – You need to factor that into your model and there is a lot of uncertainty in how that would pan out. The next of our ideas is creating better quality existing industrial areas.

Masterplan architects do not understand the market well enough and so there is a need for them to be better educated and embedded in what industrial occupiers are looking for and then we can draw on their other good ideas as well.

CoStar – Is there evidence that occupiers are more interested in multistorey and industrial led mixed use?

Richard – There is a groundswell and recognition from a diverse range of occupier base for whom proximity to customer is an essential part of their offer. Whether it is Amazon at one end of the spectrum or the food industry or on a small scale basis operators like Deliveroo where frankly the only way you are going to get your takeaway delivered is if the operation is nearby. There is no doubt we are going to continue to have a focus on convenience and speed of delivery.

I think a number of occupiers are looking at this very seriously. Understandably they are still grappling with a lot of the same problems that will ventilate around this table. The demand exists but there are a whole host of questions that flow from it. So for example turning to Mike at M&G the group has a fund focused on every sector in property but can it see itself with a fund able to juxtapose residential including say PRS with a couple of sheds let to DHL? Investment wise that would have to be a first.

Michael Williams, M&G – Yes, I have seen recently a beds and sheds fund has been launched raising £350m with gearing on top of that. I think from our perspective it is about creating a long-term sustainable investment. We are keen to be involved in the future, but I think at the moment there is not a lot of occupier support for it and so at what point does it become financially viable for them to be more supportive.

James Nicholls, Partner – Stephen George & Partners – Yes, there does need to be a shift in the institutional market and the way in which we perceive logistics in the UK and borrowing some of those ideas from Europe particularly on a funding basis. You have people that only deal with logistics, only deal with residential, only deal with retail and actually that is becoming more polarised in that you are seeing a number of developers who are saying they are moving away from doing the mixed-use stuff and saying we are only applying ourselves purely to the logistics.

There is obviously King’s Cross where Travis Perkins have tied up with Unite with the warehouse below and student accommodation on top. I would suggest that student accommodation on a multilevel multiuse basis is a good one to have a go at because we need to break the perception of logistics and resi not working well together. I think if you spoke to the general populace they would say they don’t work, but actually we could show numerous examples where they work side by side.

It is whether that kind of layering on top of each other is going to be acceptable particularly on the higher value residential side

Tristram Frost, consultant, Garbe  – Students presumably don’t go to bed until about 2 in the morning so it is probably not such an issue. Also, is it right that Amazon has recently taken space in a New York office building for making deliveries? So potentially those occupiers will be there. Amazon just need the space.

Rory – It is important not to start with the assumption that you need to mix things up at a building level. The proportion of the market that is appropriate to mix up at a building level is probably actually quite low. What you need to think more about is how you mix it up as a block at a neighbourhood level.

Oliver Fursdon, Savills - Which requires ownerships of scale, and/or land owners coming together, and ideally as with what is happening at Nestle (SEGRO), specialists doing the component parts. Michael, from a multi-use building perspective, presumably that is a difficult investment for you at present?

Michael – It is at the moment, but it is about getting people’s minds around it, this is how we see the future. Speaking to our residential fund manager, he said the main problem with the idea of beds and sheds is around people’s perception. A big PRS building with retail on the ground floor enhances the residential above because people go to the shops. Sainsbury’s has a large supermarket below student housing in Victoria, and that is going to have the same number of deliveries as industrial so I do not see how there is a huge difference.

Greg Tillotson, Barratt London - You are better placed the more central you are and the higher the pricing gets. I think the success of it lies in the design quality and how the uses are separated and serviced, the long-term management. We are working on two big schemes with Sainsbury’s in Fulham and Nine Elms and they are 100,000 sq ft superstores but the residential wraps around it and we have not had a problem at all with selling flats there. It is no more difficult than any other sites in central London. It works and it is integrated.

There are a lot of HGVs going out of the service yard but from a sales point of view you take that principal to logistics. I don’t see necessarily a problem from a market perception. It is down to design. If you just put an ugly box at the bottom and some ugly flats above then it is not going to sell well. I mean Lifschutz Davidson did one in Fulham and it was incredibly innovative and high quality.

Tristram – Would you do a restriction on hours?

Greg – Not necessarily. I mean you can have a separate ramp into the basement for example.

Tristram – Unless they are electric trucks they will surely make too much noise.

Greg – We live in London though, where there is constant noise. I think the issue for Sainsbury’s or other retailers is lorries parked waiting on streets because of the restrictions on delivery times but it can be worked through in terms of design.

James Nicholls – Stephen George & Partners – It is no greater a loss than building hard up against a railway line.  There is a constant flow of big vehicles.

Richard – I think you hit the nail on the head because residential is used to building in unusual areas and creating a good environment close to an alien or harsh environment. I think the problem may be with the logistics side because the assumption is that if you are a parcel delivery business you have to have 24/7 operations. We have been talking to the likes of Sainsbury’s on the transport side who has said well actually if we were restricted on HGV vehicle movements in peak times we would have to increase our activities outside those hours, which put simply means modelling it differently financially.

Alan – But if you put an investment in the market that was either multilevel or stacked with a couple of hundred flats above it would that investment for the industrial part trade just like any other?

Tristam Frost, consultant Garbe  - A comment from Savills 2016 Investment market Germany. “Property investors in Germany follow a code comparable with the nation’s beer purity law. According to this creed a property must consist of a single ingredient i.e. use type and each additional ingredient makes the property less palatable. Mixed-use properties are more labour intensive and the due diligence through to asset management consequently leads to a mark down in price … however, investors will find it increasingly difficult to maintain this stance going forward.” But that is in Germany where they do tend to be a little more conservative in their thinking.

I am wholeheartedly in favour of what you are saying, but this is the perception of how investors over there look at investable product and they are looking for low hanging fruit in many ways. It will also depend on the age of the manager/investor and if they are older and perhaps more traditional then they will see things in one way and if they are younger they may understand how the world is and how it is changing.

Rory – But I think London in particular and to a lesser degree the rest of the UK is unique. I mean a population of 8 million going up to 9 or 10 million where most of the industry that can leave London has left and what is left behind is to service the London economy. Those businesses are going to want to be between the north and south circular and the M25 and a proportion of them will be willing to pay higher rents to do that.

CoStar – What would be the policy issues developers and occupiers need to be aware of to bring schemes such as the ones described forward?

Levent Kerimol, principal regeneration officer at GLA – I don’t think there is much hindering industrial intensification, and it ought to  be possible to make a case for co-location with residential too, although there is not that much policy explicitly supporting it. However, it is really difficult to craft a policy that would make this work.

We had a target of 37ha release per annum, but in reality we have been losing much more land than the plan said. Residential developers are putting on pressure to develop industrial land even when it is protected with the highest protection you can give it. Arguably there are mixed messages coming from the public sector where people want the housing. But, the London plan does recognise that industrial land is really important to keep London functioning, and we recognise that it is about servicing London’s economy and population. But how do you go about saying we carefully mix industrial and residential?

It probably comes down to the design and typology details, which is difficult to control through planning policy and use class. There are a couple of places where local authorities have reworded their policies on industrial spaces to talk about mixed-use employment locations, and all this does is signal that you might be able to create residential, which raises values, and weakens the industrial protection.

Kevin – I do a lot of work for planning authorities or occupiers and the key point is occupiers don’t know what use class they are, so we are prescribing what is going on. However, the reality of what is going on in the building from day one or retrospectively may bear no resemblance to what is required and what that space is.

Rory – There is some data that proves that around a third of the space on industrial estates is not B1, 2 or 8

Oliver – I think in some areas like Nine Elms for example, there is scope to promote industrial and employment uses into overly residential areas, as the sustainability of the whole area would improve.

Levent – I would be really interested to hear people’s views on it, but a policy that could work is in places where further release is not possible, so therefore residential can only happen where the industrial floor space plus yard space is re-provided as part of that development.

CoStar – Is there an inner “voice” for industrial as Alan put it within the GLA.

Levant – Yes, it has been bubbling up in importance and it is definitely on the minds of the administration this time around. Although housing is still a priority.

In regards to whether industrial can go outside of London,  our latest work suggests this is already happening to a degree. But these places have their own pressures, and we can’t impose industrial on them, and there is also green belt land, so you’d be looking at places quite a long way away to serve London, which is not that easy and that isn’t going to work for lots of businesses.

CoStar – And are there areas where you are looking at this specifically?

Levent – I suppose if you mean are we thinking spatially, it is already in the policy that we want to release land for housing where it has good public transport, but we want to protect industrial land that has good strategic road access, so spatially co-location with residential will be where the two coincide.

James - But is there a case in the supply chain to have urban periphery sites that do supply urban sites? That is served by other methods to get from a consolidation centre. One model is let’s look at urban periphery sites to deliver into an urban environment that does not need to be constrained by height where it does lend itself to becoming a more dense urban design.

Kevin – The problem is that logical supply chain and real estate decisions are not being made at the moment. Over a third of all online sales over the Christmas period were through Amazon and almost three quarters of them were through a mobile device, and they’re able to deliver to you the same day. This is a huge market share and other retailers are trying to work out how they get market share back, and are therefore not making decisions based on profitability as they might have done in the past.

Also increasingly it will be about the business to business market – and if Amazon or Ali baba go into the B2B market and disrupt it in the way that they have disrupted the consumer market with no thought about profitability then logical real estate decisions aren’t there, so they will pay higher rents.

James – One of the aspects of having this urban periphery to urban centres is to deal with the fact that no longer can we have next day delivery but instead it has to be within the hour. The consumer is driving this. Click and collect is a massive thing that is happening. We are looking at a model at the moment in the office where we are consolidating all of these uses into one area. The retail aspect of some of these things is also really important. It might actually really work with the architecture, almost like a retail frontage to some of these elements. It will be a lot more palatable with the planning applications.

Tristram – How many people really want things within the hour? As far as I can see what we want is a delivery at a specific time – at our convenience.

James – That is why you are seeing the rise of click and collect. Reserved for three days. That is the convenience. Whether it is retailer or customer led…

Levent – Retailers and logistics will be able to adapt and perhaps charge more for this convenience. But if you are thinking about construction click and collect doesn’t work. You still need the builders’ merchants and scaffolders yards, the maintenance people and cleaners needs to be within a reasonable distance in London to work. Even coach companies that take tourists around London have to travel in and that does not work from too far away.

David  – Development of these type of schemes does work from some perspectives. If you think about Travis Perkins in Kings Cross, St Pancras Way with the Unite scheme above it for instance. They would appear to be setting up logistics hubs in and around the M25 to replace those larger open sites.

Levent – What is really interesting about Travis Perkins is they seem to do be doing it because they own those sites and they think we have an opportunity here to put residential above; it’s not coming from developers.

Richard – And the Aldi/Lidl model is to take 20,000 sq ft stores in suburban locations and typically buy a site that might have been a pub or similar, and they are leveraging value by putting two or three floors of residential above. That is what creates the additional value for them.

CoStar – What design features are needed to bring forward these innovations?

James – Well there are four things I am particularly focused on. The one thing was planning, planning policy, allocation of sites and the fact that we don’t have enough sites and also servicing customer demand is really important. So if the government says we are building so many houses per annum up until 2020 then it is not just a London problem it is a problem elsewhere. How do we service this growing population?

We need to be quite clear that the perception that you cannot have residential next to logistics is complete rubbish. You are doing it Alan already and we have been doing it on a number of sites around the country where residential is hard up against logistics facilities. B2 and B8. It is having the voice as we have said and getting out there and breaking those perceptions.

Alan Holland - Do you see any technical blockers for developing on top of one another?

James – There are environment issues to consider. There are the obvious ones such as noise, air pollution and one of the reasons I talked about urban periphery sites is you could have a completely different model in terms of how you treat your urban logistics. You wouldn’t have to bring big HGVs into city centre environments because you have already done the consolidation somewhere else.

Rory – But what about the new methods of construction that are needed?

James – If we are putting other uses above, then modular construction is going to be the way to go with this. You basically put a big transfer slab over the top of the ground floor and then you place in your hotel pod or your resi pod and you basically build them up with lighter weight construction. Resi is going that way already. If you look at the student/PRS market it is very much about prefabrication.

However, I come back to the funding issues. The one where you are layering them on top of one another is a very different thing for investors to take on board because it is a real shift in the market. And it is also about talking to the logistics operators, the 3PLs about how they are going to operate some of these buildings as well. We need to bring them around the table. In terms of the environmental - there are a number of things we can overcome - it is a mindshift. A number of clients here are talking about going for multilevel industrial buildings but we are not talking about integrated other uses in that way. I do wonder if there is the appetite for that in a way.

Alan – On X2 we have experienced the mindset piece to a certain extent. The ambition has to be whether it is resi, other high value uses or industrial – wrong word but let’s use it - in terms of ambition there can be no compromise because when the investor looks at it they will always compare it to a normal building and when you look at what we are creating as a functional entity the ambition has to be there is no compromise.

James – So what is the response of occupiers at X2, where they have got a very different model to the standard one, and what they were looking for in terms of the space?

Alan – I think the market in the end rescued the building because the general supply outside of X2 got eroded,  and now it is being used on a daily basis. The fact it takes a little bit longer to get to the first floor, no problem, there is a price point for the upstairs rent. Also, the fact that there are a few more columns on the ground floor, well so what, we can work around it, as it is a largely automated process flow. The columns, well there are a lot of them, but we know where they are so we can deal with it, so it has worked out okay. It is just that when you compare it to a normal facility it has a few more constraints and it took a while for the market to get over it.

Rory – If you look at the history of X2 in some ways it came onto the market too early, because there was no constraint on alternative options for supply, and I think that is where we are heading for in outer London.

 

Tristram – Is the title perhaps taking us down the wrong path? You call it beds and sheds, but actually you don’t have to put beds with sheds, you could put offices and a host of other uses?

Kevin – Well actually the natural bedfellow at the moment is retail warehousing, if you think about what is going on with click and collect and you think about the location of out of town retail parks and the rental values associated with those retail units it is almost converging with the upper end of industrial rents. Is this not a better place to start?

Tristram – In Wandsworth you have a Sainsbury’s which generally would be on a single level but this has an escalator going to an upper level where you have further retail and parking, and it is because you are so land constrained within the central London area that you are limited to what you can do and are therefore looking to maximise site usage. Other uses is what we should be thinking about, which would be more palatable to investors.

James – Building design can make it flexible in terms of that. You can have all those layered. It also works better in regards to the environmental issues if you have a workplace with logistics, in a multistorey setting.

James – There are lots of examples of this. It is not just King’s Cross, it is Sweden and France and the Netherlands. The European market is very different to the UK. In the UK terracing of units is not something we have done a lot of, apart from in this market. Everybody’s front door is their castle as it were, whereas in Europe it has always been mixed-use, using yards for multiple occupiers.

Mike – It might sound obvious, but I think from the institutional point of view it will take the first one to happen in the UK and be regarded as a success before making a large commitment.

Kevin – Is it not similar to the low density parcel hub?

Mike – It will take time.

CoStar - From a self-storage perspective have you not been tackling some of these issues for some time?

David – Yes, but anything we say here is typically caveated to within zone 2 and 3 in London, because that is really where we are prepared to bend the rules. Once you get outside of this area then there is no justification for us to do anything other than a normal Big Yellow shed.

However, in Kingston we put residential in front of self storage on a 100% site coverage scheme and it really flew. It is small scale; you only have around a dozen flats there plus around 60,000 sq ft of self storage. But the actual resi units flew because the whole concept of storage is the security angle, so the buyers of those flats bought into that security.

Oliver – This works well because you are a non threatening use.

David – Yes, we are a relatively quiet user. Where we have an alternative use within the development you almost certainly find the occupiers also become self storage customers, whether they are commercial or domestic. In other locations such as Wandsworth or Battersea , where there is a large amount of high density residential coming through, the thing those buyers will need straight away is self storage. They are not necessarily going to pay quarter of a million pounds for another bedroom for extra storage, they are going to come to us.

CoStar - Do you have targets for growth in this area?

David – We are typically reactive to what comes to us, but we are keen to look at this in more detail and understand how we can be more competitive against typically the resi guys.

Oliver - Do you see yourself providing some of the resi? Do you need to partner with a housebuilder or do you resource up and do it yourself?

David – We could do either. The reality is that we would not want to hold a lot of resi as it is not core to our business. We currently have one site where we are looking at a large scale mixed redevelopment. We have two options – we can do a comprehensive scheme that has a multiuse single building, or we can put a new Big Yellow in as a stand alone element. In this case we are likely to do the latter.

CoStar - How often do you provide flexi offices?

David – We always used to steer clear of them because the operating cost is greater than storage, but the income is much the same. However, we found that the office customers will invariably also become self-storage customers, plus, from an employment generation perspective, it actually puts real bums on seats.

Richard – In some sense Big Yellow has had to be innovative so you are at the forefront of this. I suspect you have a lot of the ideas and answers.

David – It isn’t new really but the scale of what you are talking about is. Actually putting these combined uses together has been done. The buildings have been built, the uses have been put together and they work.

CoStar – Who should take the lead on this to make it work?

Richard – It is everyone coming together.

Kevin – I would argue that it is probably the tenant. I was at a presentation last week and a brilliant soundbite was that flexibility of delivery is going to become like a utility. So we are talking about high speed broadband provision, but we may have been talking about other services. Five to 10 years down the line the ability to be serviced is going to be treated by us as a utility as we want and expect and need whatever it is we are having. So when it comes full circle, the crux of it will be the service provision from the retailer. So arguably the retailers, the onward movement of product, will be the driving force. Second, is control of land and freehold. I wonder if we are at a tipping point with what is coming up soon with the lease accounting changes. IS17 and all that. Will that have an impact on the decisions that the occupiers make? Well actually we will buy that site, we will do something and actually we will service from there.

Richard - Difficult to see who would be at the forefront of that. There are certain sectors for whom that might be workable. I think there is some truth in the age old agency approach to saying build it and they will come. There comes a point where we can debate these things endlessly and getting the design right is essential but we need a live project to crack on and do it. In the overall scheme of things it will need a SEGRO or somebody of that ilk.

Alan- No, I think you have to buy into to the mega trend of urbanisation. If you get that as an investor then you are there. People want to live and work in big, global centres so once you have that you are a long way there.

Once you get to that bit, that is when you need the policy in place, then it will absolutely fly. Also,  this is quite a top of the market thing right now if you look at the cycle, things are usually developed when rents are going up, yields are coming down, everything is rosy in the garden and here we are looking at this topic again.

It would be great to have one of these as a success and for the occupier to say yes it is no different to what I can get elsewhere. If you look at the Far East,  it is like which floor do you want, because there is no single storey. They just band it. If you look at air quality and the news from Sadiq (Khan) a couple of weeks ago, people are really into it, and it matters to the lives of Londoners, so actually if there was a legislative position and we had to intensify, that stops us building single storey and we would naturally move towards intensification.

Kevin – That was the driver in Asia. You had a combination of a hugely urbanised population and intervention on the planning side and rocketing land values. So all three of those planets aligned and that is what happened. This is what we are close to seeing in London and other major European urban environments,  then the next cycle is probably when it would happen in Birmingham, Manchester, Leeds etc.

Tristram – I think that presupposes the growth stats. I would say you are only really looking at that in the megacities of London and Paris at the moment. The German cities aren’t really big enough right now, potentially with the exception of Berlin, to require that and if you look at where the overall national German demographics are going they are mostly going sideways or slightly down, though there has of course been a large recent influx of refugees and some of the actual city populations are expanding but they are not that large or so land constrained as the megacities.

CoStar – How do technological changes around drones and automated delivery change this market?

David – Will they be outlawed in London before we know it?

Kevin – The whole thing on that comes down to cost. The last mile is expensive so the likes of Amazon and DHL are looking at autonomous technology to save cost. So is it weighing on any decisions at the moment? No, it is a bit of a red herring. But the reason people are talking about it is to save cost and that cost at the moment is being absorbed by retailers. At some point it will not need to be or will be transferred to the consumer and that is why people are talking about it.

I think autonomous vehicles in some shape or form is a closer reality and there is a trial if you go to Greenwich with delivery robots - a robovan. The autonomous delivery robot has completed 3 million deliveries in its pilot scheme and not once has it been intentionally interfered with says the marketing.

Rory – What we are talking about is real estate and moving things around and that will not change. You are always going to have a building with goods in it that you are moving or vice versa, so that is different from what is going to be the new growth sector in the economy which is another point. Ultimately, there will be not a huge shift in the need for buildings.

Tristram – But is this not to do with values? Considering again Amazon taking its first office floor in New York for distribution purposes.

Richard – That concept of utopia where you are up on the 14th floor of your apartment and you say right I have got to go to work now, so you go down to your basement and you say that is where I work, is sort of what you are talking about.

Tristram – We are looking at vertical community single buildings where your home is at the top, your offices is the middle and your supply chain is at the bottom. Supplying your vertical city.

Richard – And how you service that mirrors the consolidation centre concept contained in the Axa consent in Bishopsgate. The issue is you cannot do it on a small scale.

Alan – One other theme we hear a lot from our customers is the experience of those who work in the sheds. For our clients the biggest headache is finding the space, there is not  enough space. But the next biggest issue is people. In a big economy with a low structural employment rate that is a big challenge, and without the people we are in a tough place. So actually improving the amenity of the space where people are working, where you can come out of your facility and pop to somewhere where there is stuff happening – not unlike what you see at Chiswick Park for instance - that is needed to keep London working. One benefit of mixing up the uses is creating something more sustainable and interesting.

pnorman@costar.co.uk

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