Compulsory purchase orders and industrial land values

Compulsory Purchase Orders are fuelling the scarcity of industrial land. However, the trend of industrial uses being pushed out ever further from London and the South East by compulsory purchase schemes for transport and regeneration is not new.

The Olympics, the Jubilee Line extension and Crossrail all hit industrial land in the Stratford area of East London, pushing occupiers out towards Thurrock and the M25. Several occupiers were hit twice by successive schemes and deserve our sympathy; speaking from personal experience (our family farm was part acquired for the Wainscott by-pass in Kent) one compulsory purchase is enough for a lifetime.

There are numerous current schemes in the South East supported by compulsory purchase powers which have an impact on industrial land supply; Purfleet on Thames, Ebbsfleet Garden City, Old Oak Common and Park Royal regeneration, Bridge Close regeneration in Romford, Riverside Energy Park in Belvedere, the London Resort in Swanscombe and of course, Heathrow’s third runway.

The difference between now and ten years ago (and it is a recent phenomenon), is that industrial land values, so long the ‘ugly duckling’ of the property market, are finally competing with the traditionally more glamorous asset classes.

Compulsory Purchase Orders are fuelling the scarcity of industrial land.

This is a trend that Compulsory Purchase Order scheme promoters and planners are going to have to grapple with, for their compensation budgets and associated scheme viability. Even in the outlying areas of East London and as far out as Grays and Gravesend, open yard space is now hitting £3/sq ft leasehold and £2m/acre freehold. These values have roughly doubled in the last 5 years, driven by scarcity and increasing demand for warehouse development for urban logistics. There is a severe shortage of well-located sites for distribution use, and urban sites suitable for last mile delivery, waste recycling and open storage. Overall, it remains hugely challenging to satisfy occupier demand, creating strong upward pressure on values.

Look towards the west and values get even more interesting; it is likely Heathrow will need to acquire significant areas of industrial land. If they work within their timelines, they will be granted compulsory purchase powers under a Development Consent Order in 2022. Starting values for open yard land in outer West London are £4m/acre freehold and £5/sq ft leasehold, but can go much higher for well-located sites with development potential.

When acting for owners of industrial land in London and the South East, we have experienced compulsory purchase scheme promoters seemingly unaware that the market has transformed. One of the major advantages of working in a multidisciplinary property firm is speaking regularly to our industrial team, led by Andy Smith, who are selling, letting and acquiring sites for clients across London and the South East day in, day out. The team have all the necessary leads and contacts providing priceless market intelligence, informing our compulsory purchase valuations and negotiations.

So, what is driving this price growth? Competition is strong with developers being obvious buyers, along with income driven investors looking for rental growth. Interestingly, recent headline values are frequently being paid by traditional owner occupiers. Paying cash and unconstrained by the need for valuations to underpin lending (which can lag behind a rapidly rising market as they are supported by historic evidence), owner occupiers are paying market highs on some sites to price out developers and secure their future in the capital. Or at least until a compulsory purchase comes along.

Owner occupiers are paying market highs on some sites to price out developers and secure their future in the capital.

It’s not just compensation budgets that will need to adjust; for housing led regeneration CPOs, it will be an increasing challenge and risk to demonstrate that there is a compelling case in the public interest to displace industrial land.

At a regional policy level, the emerging Draft London Plan continues to protect against the loss of industrial land to other uses. Draft policy E7 ‘Industrial Intensification, Co-Location and Substitution’ encourages intensification within proposed new industrial sites to provide more efficient use of land. This ‘industrial intensification’ includes the potential to consolidate Strategic Industrial Land (SIL) to support the delivery of residential uses, social infrastructure or town centre renewal, subject to increasing the overall capacity of the SIL, and satisfying other policy requirements.

It remains to be seen how this draft policy will work in practice, but the balance between the loss of increasingly valuable industrial land, and housing completion targets is delicately poised. The former may not always look polished, but it’s an essential cog in the economy both in terms of employment and productivity. If logistical and industrial uses are pushed to the periphery of the South East, our urban ‘just in time’ economy will not function as efficiently, and productivity and growth will suffer.

Welcome to our first issue of Infrastructure View, our new publication celebrating the expanding and very exciting UK infrastructure sector.

The government’s latest National Infrastructure and Construction pipeline shows over £600bn of investment over the next 10 years. Planned projects will enhance the nation’s transport, energy, water and communications networks, and help to solve the housing crisis.

To read more articles like the one above click the link below to download the full publication.