“It’s a battle between local authorities and government. Most local authorities want land around the M25 to be used for employment purposes and the government is keen to use it for housing. That’s it in a nutshell.”
These words from FPDSavills’ Simon Grier-Jones sum up the dilemma over land use around London’s orbital motorway. But there is almost universal acceptance that, when the opposing uses do come into conflict, residential tends to win.
The short-term problem is chiefly one of office and warehousing overcapacity (patchy and variable around the M25), and residential under-capacity (in all areas except the east).
FPDSavills calculates that office take-up around the M25 in 2003 was 2.6m sq ft, some 25% lower than in 2002, which was 48% lower than in 2001.
During last year, average prime office rents around the motorway fell by 4%, and the company predicts a similar drop in 2004. By the end of the first quarter of this year, the vacancy rate reached 13%, leading Savills to conclude that “oversupply will inhibitgeneral positive rental growth for the next 12 to 18 months”.
With the government itching to have the maximum number of new homes in the South East, especially if they are located close to employment areas and therefore limit commuter traffic growth, the trend in favour of residential is not surprising.
“I’m acting for companies, institutional investors and developers looking around the M25 for residential use. It’s more in the western corridor than anywhere else, but it is beginning to take place around a lot of the motorway,” says Grier-Jones.
For example, he is working with developer ProLogis and potential residential clients to convert a former MoD site at Hayes near Stockley Park – well-located for Heathrow Airport and the M25/M4 intersection.
In response to increased demand for distribution facilities caused by the airport’s T5, around 30 acres of the site will be development into warehousing. But it is hoped that five acres will be earmarked for residential developments.
“Although in many parts of the M25 a plot would fetch perhaps twice as much for residential development as for offices, the arrival of T5 means that, around Heathrow, the relative prices of land for sheds or homes aren’t that far apart,” says Grier-Jones.
Indeed the Industrial and Warehousing Land Demand in London report – written for the Greater London Authority in August by Roger Tym & Partners, C2G Consulting and King Sturge – suggests both uses could achieve £2m per acre near Heathrow.
But elsewhere around the motorway, other sites are under examination, and residential demand is proving less resistable.
Knight Frank’s Andrew Johnson is acting as consultant for a residential developer seeking to use part of Farnborough Business Park, close to the M3/M25 intersection, to develop between 350 and 500 homes.
The site, bought from the MoD by Slough Estates in 1999, has outline planning permission for 1.6m sq ft of office use. In addition, some of the redundant commercial buildings on the site are listed because they are landmarks from the location’s halcyon aerospace development days.
Proposed planning
Even with the government’s proposed planning requirement that up to 40% of the housing should be affordable, together with the expense to Slough Estates of restoring the listed buildings on the site, it is believed the return from selling the site for residential could be twice as much as it would be for traditional commercial use.
Johnson thinks this project is merely the tip of the iceberg. “I know many people are looking at industrial estates for possible conversion. They see that the industrial use has still got perhaps three to five years of income remaining because of leases, so that gives them time to develop plans for future residential use. You’ll see a lot more of that in the future,” he says.
But location is all for residential developers, and market volatility could yet deter volume builders from seeking out the best sites around the motorway.
“The concept of the M25 corridor is valuable and inevitable for office and commercial use,” says Yolande Barnes of FPDSavills’ commercial research department. “But it doesn’t mean much in residential terms where access to tubes, buses and railways is probably more important, and there is a preference for radial developments of homes around these transport hubs.”
This could be why much of the residential pressure is coming in the western and southern sectors of the M25, where there is limited scope for further development inside the motorway, either because of a shortage of large sites (in the west) or greenbelt restrictions (in the south west and some parts of the north).
In contrast, there is an enormous amount of development potential inside the eastern sector of the M25. In Greenwich alone, there are 13,800 residential units in the pipeline according to the Greater London Assemby, with plenty more to come in the future.
This means housebuilders have little interest in constructing close to the motorway as it runs through nearby eastern counties such as East Sussex, Essex and Suffolk.
“Also, while residential land is currently more valuable than office land, remember that it’s office values that will rise more over the next couple of years, according to our predictions. In a slowing housing market, residential land may also be under pressure with demanding S106 agreements weakening confidence. So it isn’t just a one-way trend,” says Barnes.
The excessive supply of warehousing makes the release of land and buildings to residential players in the region a little more likely than from the office sector.
Warehouse and distribution
The Tym report for the GLA, which is the most comprehensive research done on the demand and capacity required for warehousing and distribution facilities in the capital for more than five years, recommends the release of 124 acres a year of land earmarked for warehousing to other uses.
Although the report does not explicitly refer to the M25 corridor, it places London boroughs in three categories according to how easy it would be to release land for non-warehousing purposes (see box).
The problem is, most land release is suggested for the east, where residential space is already relatively generous, whereas most residential developers say their real need is to find opportunities for higher priced units in the south and west in particular.
All of which means the central dilemma is unresolved. Will planning authorities give up jobs for homes? On the outer ring of the motorway, the majority of councils will probably choose homes, but with London’s population expanding over the next 10 years, those inside will be less enthusiastic.
But as one residential developer put it: “If we’ve got green belt and nimbys to deal with, surely the planners can put some empty shed space our way?”
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Restricted transfer – where demand for industrial/warehousing is high so little or no land should be released: Bromley, Camden, Croydon, Hammersmith & Fulham, Kensington & Chelsea, Merton, Richmond-upon-Thames, Sutton, Wandsworth, Westminster. Managed transfer – where warehousing land supply is generous, so release can be more permissive: Barking & Dagenham, Bexley, Greenwich, Havering, Newham & Redbridge. Limited transfer – which lies between the “restricted” and “managed” categories: Barnet, Brent, Ealing, Enfield, Hackney, Haringey, Harrow, Hillingdon, Islington, Lambeth, Lewisham, Southwark, Tower Hamlets, Waltham Forest. |
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Source: Industrial and Warehousing Land Demand, GLA, August 2004 |
