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16.4M SF Of New Demand And More: The 6 Key Takeaways For Property From Heathrow's Third Runway

On 5 June the U.K. government gave the long-awaited green light to the building of a third runway to expand capacity at Heathrow Airport.

The third runway is not quite a forgone conclusion yet: Parliament has to vote on the decision, and it will inevitably face a judicial review. But the expansion of Heathrow is on the point of takeoff. It will allow another 740,000 flights a year, create 70,000 new jobs and enable routes to 40 new destinations to open up, according to government estimates.

It is a decision that most in the property world have thrown their weight behind. Here are the key implications for the sector.


The value of the Heathrow market will skyrocket

The decision to build a third runway at Heathrow will be a massive boon for existing property and land owners in the Heathrow area because of increased demand for space. When the National Infrastructure Commission recommended expanding Heathrow rather than Gatwick in 2016, Lambert Smith Hampton estimated that rents for offices and warehouses in the area could rise by up to 85% once the third runway was fully operational. It said the value of assets in the market could rise from £10.7B to £18.3B.

Heathrow itself estimated that a third runway would create the need for 16.4M SF of new commercial space, including 2.3M of offices for large international occupiers.

The big winner will be industrial


The sector which will see the biggest benefit will be industrial. “It is easily overlooked that hundreds of businesses operating in the warehousing and distribution sector depend entirely on being located in the vicinity of Heathrow,” LSH Head of Research Oliver du Sautoy said. “As well as securing the long-term presence of existing occupiers, additional airport capacity would allow more cargo to pass through the airport, driving demand for new warehousing development in the area.”

Heathrow estimates that the third runway will create a need for 4.8M SF of new logistics space, above and beyond the 5.7M SF needed to handle cargo on the site of the airport itself.

Industrial REIT Segro is the largest landowner in the area with more than 5M SF, and unsurprisingly it wants work on the new runway to begin as soon as possible.

“We now urge Parliament to continue this positive momentum and bring an end to indecision,” Chief Executive David Sleath said. “Access to new and emerging markets is fundamental to ensuring the U.K.’s place on the world stage and failure to expand Heathrow will leave the U.K. behind its international and European competitors.”

The office sector of towns near London will feel the benefit

As well as property in the immediate vicinity of Heathrow, Lambert Smith Hampton said other towns in the 65M SF Thames Valley office market such as Reading, Bracknell and Maidenhead could also expect a boost.

“The region is already benefitting from major improvements in rail infrastructure, namely the Western Rail Link to Heathrow and Crossrail, and Heathrow’s expansion will augment this investment,” du Sautoy said. “A large number of locations stand to benefit, including Chiswick, Ealing and Hammersmith in West London, together with key towns along the M4, such as Bracknell, Reading and Maidenhead, which are home to an array of global technology giants.”

Start looking for hotel sites near the airport

Hospitality is another sector that will see a large increase in demand as a result of the third runway. Savills estimated that Heathrow will require another 3,500 hotel beds, an increase of more than 30% on current levels, and that expansion will allow the development of new short-stay brands. Hotels in the area have occupancy rates of around 80%, meaning that an increase in passengers will create a need for new schemes.

Property within the airport itself will expand massively


Even before the Heathrow third runway was approved the airport had appointed architects Grimshaw and Benoy to draw up designs for a £16B master plan to significantly increase the amount of offices, retail, leisure and hospitality within the bounds of the airport itself. The aim of the master plan, the architects said, was to blur the boundaries between the airport and the surrounding area, making it a commercial property destination in and of itself.

The outlook for residential is not so great

The one property sector that would be negatively affected is residential. Increased noise and air pollution could cause residential prices in the Heathrow area to fall by up to 20%, estate agent eMoov predicts. Some homes will have to be compulsorily purchased to facilitate the development of the third runway, a programme that could cost up to £2.6B.