Thames Valley: Estuary airport would wipe billions from value of commercial property, says Lambert Smith Hampton

Over 100m sq ft of commercial property surrounding Heathrow, and in the Thames Valley and West London, could be put at risk by the Davies Commission’s recommendations regarding the UK’s future airport capacity, according to research by Lambert Smith Hampton (LSH): 'UK Airport Strategy: Dicing with the property market'. 

On September 25 LSH launched its research to an audience of property professionals from across the Thames Valley, London and the wider South East market, with guest speaker Tim Smith MBE of the Thames Valley Berkshire Local Enterprise Partnership.

The report highlights just how much is at stake from airport expansion. There is 30m sq ft of industrial space and 7.5m sq ft of office space in the Heathrow market alone, almost all of which is there because of the airport. Heathrow’s sphere of influence extends as far as Reading and Newbury in the west and along the M4 to Hammersmith and via the Heathrow Express to Paddington. Two-thirds of the UK’s top 300 businesses have headquarters in Heathrow and the surrounding area; 18 of the world’s top-25 software companies and 15 of the UK’s top-25 pharmaceutical companies are based in the Thames Valley; and the Thames Valley has the highest proportion of people working in “top output growth sectors” in the whole of the UK.

According the the research findings, if Heathrow closes, the premium paid for property would disappear overnight. Tom Leahy, report author and associate director of research at LSH, said: “There is a premium of 25-35% paid for commercial property within close proximity to Heathrow. If the Davies Commission recommends a Thames Estuary airport, Heathrow will have to close and the premium paid for property in the area would disappear overnight.”

Leahy continued: “The value of the tens of millions of square feet of office and industrial stock close to the airport is between £7 billion and £8b, so a conservative first estimate would put the resulting loss of value at between £2b and £3b. The impact of the closure would ripple out to the west in the Thames Valley and the east of the airport in West London, causing the combined value of these markets to fall by many billions of pounds.”

A mass migration – but where to?

• Occupiers reliant on the airport for business in Heathrow, the Thames Valley and West London would either vacate or look to downsize their operations (companies such as GlaxoSmithKline, Microsoft, Visa and DHL).
• Many of these businesses would be forced to migrate from west to east to ensure proximity to international markets via the new hub airport. Given the lack of business infrastructure present in the Thames Estuary, some would consider locating in central London, but the years of uncertainty – resulting from a decision to move hub capacity elsewhere – could prompt others to move outside the United Kingdom, to Europe, the Middle East or Asia, greatly damaging the UK’s economy.
• These businesses support thousands of jobs which would be displaced – Heathrow and its related industries alone employ 115,000 local people - causing a widespread disruption of the local residential, as well as commercial, property markets.

Heathrow’s closure would ultimately lead to a wide scale regeneration issue, which has some parallels with the closure of east London’s Docklands from the 1960s onwards. These closures made thousands of workers unemployed and the former docks and their associated infrastructure were left redundant.

Leahy explained: “Government stimulus would be required to regenerate the Heathrow area in the aftermath of the closure, through enterprise zones and other grants encouraging businesses either to stay or relocate to the area. It took the London Docklands Development Corporation (LDDC) 17 years and almost £10b to kick-start the regeneration of the 8.5 sq miles of land covered by the LDDC.

Billions more needed to replicate Heathrow in the east

Commenting on why building a new airport on the Thames Estuary would not only cause major damage to the commercial property market surrounding Heathrow and beyond, but also prove a very costly option, Leahy added: “There is not the concentration of business or residential infrastructure in the Thames Estuary or at Stansted to replicate the business infrastructure that already exists at Heathrow.

“Significant costs would be incurred, not just through the construction of the airport itself, but also through the creation of the business and social infrastructure necessary to service the airport. Moreover, rising building costs mean that the bill for reproducing the infrastructure around Heathrow in the Thames Estuary would be greater than the value of the property being replaced.”

LSH awaits the Davies Commission’s interim recommendations, but its Airports Report shows that the best option to safeguard the future of both the UK’s economy and some of its most important business locations and commercial property markets, is to expand airport capacity at Heathrow.