Roland Nevett – Retail Warehouse & Industrial
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Thank you Peter and Richard. I’m Roland Nevett, and I look after retail warehousing
and industrials within the Land Securities group.
Turning first to retail warehousing, we are the largest sole owners and managers of
retail warehousing with 5m sq ft valued at about £1bn. We have 26 retail parks
throughout the UK. This gives us the unique opportunity to work closely with the
limited number of tenants in this sector.
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However looking at market conditions there are three main characteristics, which are:
 limited supply through restrictive planning policies
 growing tenant demand and the
 opportunities being created by the tenant’s changing requirements.
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Looking at supply in more detail there’s total stock of about 130 million square feet of
retail warehousing. Total new supply is falling by 30% over the period but if you strip
out large DIYs and small clusters, new retail park space is falling by over 50% to less
than 2m sq ft per annum.
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On demand the traditional bulky goods sector is still healthy but in addition, we are
now finding that high street retailers are looking out of town because of affordability
and its attraction to a different sort of customer who’s not prepared to deal with the
congestion of the town centre.
This slide shows some of them. We’ve just opened a store for Borders at Thurrock
and we’ve just let 20,000 sq feet at Gateshead to Next.
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Now its all very well having this favourable situation, but we need space to re-let.
Here we are assisted by the changing demands of the traditional retail warehousing
users releasing space for us to re-let allowing us to realise improved rental values.
Here you can see MFI and Courts who are reducing the size of their stores from
40,000 sq ft to 20,000 sq ft, by taking storage off-site or putting in a mezzanine.
Other operators, such as Currys are moving from 10,000 sq ft to 30 or 40,000 sq ft
and B&Q moving up to 100,000 sq ft to create destinations stores and improving
turnover densities by up to 50 percent per sq ft.
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Let me take you to Gateshead which is a living example of what I have just been
talking about. We purchased this estate in 1996, and nearly all the retailers there
were traditional bulky goods and here are a few of them which no longer exist on that
estate.
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What we’ve done is to replace them with these retailers. The latest transaction is with
Next, which has created enormous interest from other high street retailers.
We have now created a 375,000 sq ft regional shopping park.
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But it is not just a question of getting the right tenant mix,
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it’s also improving the shopping environment by refurbishment, improving
landscaping, car parking lay out.
What has this done for performance? We’ve doubled the rents to around £23 per sq
ft over the last seven years and moved the capital value from £47 million purchase
price to over £100 million and total returns per annum have averaged 21 percent
since purchase.
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Let me now show you a few other examples of asset management. This is Aintree
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Where we doubled the size of B & Q to over 100,000sq ft, keeping them trading
throughout.
As a result other retailers such as Comet have taken destination stores.
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This is Hendon, this is an old Homebase.
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which is now being refurbished and relet to Halfords and Comet. We’ve just prelet
the last unit to Allied Carpets.
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White City, Manchester where we are planning on taking out an existing 2 storey
leisure box and
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replace it with destination stores and improve access with a new junction.
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All in all over the past six months, of the 195,000 sq ft we have taken back all but
25,000 sq ft has been relet and we’ve moved the rents ahead by an average of 83%
from £10 per sq ft to £18.40.
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Having dealt with asset management let me show you what’s happening on the
development side.
At Livingston – adjacent to our shopping and designer outlet centres and retail
warehousing park, we’ve just completed 90,000 sq ft for Homebase on a green field
site.
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Looking at Cheetham Hill, an example of urban regeneration, where we demolished
first generation retail warehousing and replaced it with 100,000 sq ft for big W.
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Lakeside, where we have replaced an industrial estate with stores for Borders, My
Travel and we’ve just agreed terms with Next for the final unit. Our 370,000 sq ft
park will now have wider shopper appeal.
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But there’s more to come we have planning consent for around another 360,000 sq ft
including
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This project at Dundee, where we are building the next phase of a regional shopping
park.
Next year we will start another phase here and a second phase at Livingston and an
extension at Bexhill
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Let’s not forget the investment sector. We comb the market for opportunistic
purchases such as this one at Northampton which we bought earlier in the year and
due to a little bit of yield shift and a lot of asset management, is now valued at 20
percent above cost.
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If we look at the portfolio as a whole, average rents are now £13.50 and over the next
few years I see no reason why we can’t move them to an average in excess of £20 a
square foot.
We have a strong asset management and development team who know all the
retailers.
Our job is to work with occupiers to ensure the best value is derived from our
properties.
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Moving on to industrial, which is a very different animal and where we have a
separate specialist team.
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Three years ago we decided to focus on the South East. Why? Sustainability of
demand which is largely driven by the distribution and service sectors, and the limited
supply is often reduced further by competition from higher value uses such as offices
and retail warehousing as well as housing. A good recipe for growth.
We have sold most of the provincial holdings, reinvesting in the South East through
development. Not only does this provide higher returns but in this sector we buy,
build and let within 2 years.
Slide 27
Here are a few examples - in Guildford a shortage of industrial space has been
created by transfer of land to office space – but with continuing demand from the
service sector, who still need warehousing space to service the town.
Our 123,000 sq ft development at Guildford has just been completed and was nearly
one-third pre-let – this is quite unusual since most users like to see the product
completed and take late decisions on relocation.
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At Basildon we’ve just completed 160,000 sq ft at Zenith and this is over a quarter
pre-let.
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Basildon is a sector of the M25 which is a property hotspot generally, but the
attraction for industrial users is value for money and a good labour supply so we
bought and refurbished the former Gordon’s gin factory which at practical completion
was 84 percent pre-let, mainly due to flexible leasing,
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We’ve now started building 120,000 sq ft on surplus land, and this will be offered into
the market not just on a letting basis but also freehold responding to strong demand
from the owner/occupier sector.
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We’ve also got developments at Hemel Hempstead, Welwyn and are about to start at
Croydon and Oxford.
All in all our development programmes total about 1.2 million sq ft in major M25
towns.
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Looking towards future landstock, we have secured a number of options - some
around Heathrow, but the most notable one is a 300 acre joint venture with Gazeley
Properties at Milton Keynes adjacent to the M1 motorway. We expect to have about
200 acres released for development with a land value of around £100 million and an
end investment value in the region of £200 million.
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To wrap up, this sector offers sustained growth and low depreciation with the
occasional windfalls through moving to other uses such as offices which can release
substantial value.
At the moment industrials represents about 5 percent of the portfolio but it is our
intention that this will be turned into 10 percent over the next few years, providing
greater diversity from a relatively stable sector.