INDUSTRIAL SECTOR

Adding value

Value can be added from a variety of sources, not just good estate management. One of the largest contributions to added value has been planning upgrades, from industrial uses typically to residential. One of LGP's strategies has been to acquire industrial estates close to residential areas in the South East. Given the housing shortage Local Authorities are often persuaded to grant changes of use. Values can increase from say £900,000 per acre to over £8m per acres depending on intensity of development.

New industrial developments also give us the opportunity to add value through development returns and to help freshen the portfolios we manage. By working closely with a small number of developers with whom we have forged close working relationships we are able to deliver new facilities that tenants want.

Logistics

Unlike multi lets, warehouses tend to have relatively long leases, lower void rates and better covenants, and are therefore on the whole less intensively managed. This does not take away the need for specialist management. The logistics market is in fact an extremely dynamic market.

The sector has evolved in the last 30 years, as our economy has changed from a manufacturing economy, to a service economy, where a higher percentage of goods are imported. Relationships with key occupiers are also critical, so that we can fully understand their needs. There are in fact a reducing number (through mergers & acquisitions) of key players – and we have close relationships with the key retailers & logistics operators. Supply chain management is critical for retailers, who have in effect taken control of their supply lines.

Legislation

Both UK and European legislation has a bearing on building location & design. The Working Time Directive, for example, restricts how far drivers are able to transport their vehicles. The effect of the Directive can minimise travel by as much by as 90 miles per day, and this will push locations back to sources of supply (e.g. Ports) and / or the end market. Other pressures are also having an effect on location such as a lack of available sites for developments, lack of labour availability and upward rent pressure in traditional areas. We work closely with our advisers to identify these trends to take best advantage.

Building Design

Building design is also changing rapidly. A building that was designed 15/20 years ago is unlikely to meet modern requirements. The size of new warehouses has for example doubled over the last 10 years, technology in warehouses has allowed the developments of taller buildings & better stock control and yard depths are increasing to allow for larger vehicles and also vehicle storage.

The Green Agenda

The green agenda has been embraced by the sector perhaps more than any other sector. This is being driven by the retailers who are keen to mitigate the environmental impacts of their supply chain. We have been working closely with our advisers to incorporate various green features into our new buildings, as we believe these buildings will be more attractive to occupiers and ultimately command higher capital values.

Adding Value

Whilst the above factors add to tenant retention and fund performance the most significant way to add value is though undertaking developments. Developments give us the ability to refresh our portfolios, give us greater diversification of locations & occupiers, and also minimise transaction costs. Currently we are developing over 2m sqft of accommodation in a variety of schemes across the Country. We work closely with a select number of developers to identify the best schemes for us to undertake.