Segro: Planning to replace Heathrow's cargo 'horseshoe'

11 / 07 / 2018

Heathrow’s cargo landlord, Segro, is already planning for the complicated construction jigsaw that will see the 1960s design ‘horseshoe’ cargo area replaced by a modern cargo city when a third runway opens.

Late June saw Members of Parliament in the House of Commons vote 415 to 119 in favour of Heathrow expansion, allowing the Airports National Policy Statement (NPS) to proceed, although there are still environmental and other requirements to be met.

Industrial warehouse developer Segro paid £365m In March 2017 to acquire 100% control of Airport Property Partnership (APP), whose assets include the majority of Heathrow Airport’s airside cargo facilities. It is also present at Gatwick and Stansted airports.

Alan Holland, Segro’s business unit director for Greater London, says: “We welcome the decision in the House, after decades of nothing happening. We have been working hard with Heathrow Airport Ltd (HAL) and with our customers who have been supportive of an expanded hub airport for some time.”

HAL and Segro’s vision is to double cargo capacity at Heathrow to at least 3m tonnes per year.

Says Holland: “That doesn't mean just in tonnage terms, but to bring new and improved ways of working, increased productivity and to embrace technology that is revolutionising the wider warehousing sector.”

“It is an enormous opportunity for the airport and airport community and investor developers like Segro to come together and really transform Heathrow’s cargo area.”

He adds; “Our customers have made the point that Heathrow is losing out to continental European and other hubs through a lack of volume and a lack of flight capacity, but what is there can be improved, it can be redeveloped, and it can be grown.”

Holland speaks of “like-mindedness” among all the Heathrow cargo stakeholders, from the tenants to Borderforce, HAL, and the Civil Aviation Authority, “to really get behind this project”.

The new look Heathrow cargo area will, in effect, rotate the existing cargo village 90 degrees to be parallel with the southern runway, as does the IAG Cargo building, which will stay where it is.

Says Holland: “The plan is to increase the choice for customers in terms of the space, and we have also got and to eradicate some of the frankly more challenging operational issues such as lorry parking and other inefficiencies where shipments are being handled two or three times.

“We will improve security and resilience. The vision is to create a first class global cargo centre in line with Heathrow's aspiration to create one of the best airports in the world.”

Taking a fleet of bulldozers to the horseshoe and building something better in its place, is the ambition, but it masks the complexity of the task.

In simple terms, Heathrow’s cargo village will remain in the current location, with its centre of gravity around the Southside of the airport, as now, and unaffected by the construction of a third runway to the northeast.

“We will have to redevelop it in phases, as one of the big constraints with an airport like Heathrow is a lack of land which means we cannot close areas and move people off and move them back on.

“So we would take a portion [of the cargo village] back, redevelop it, create the space and then move an existing customer into that space which frees up a space somewhere else.

“Roll it into the sequential phases such that over a period of time one could: build, move, demolish and then repeat.”

Segro knows that its customer base, inside the airport perimeter fence, have time-critical cargo to get on a flight to make a worldwide connection, meaning they need direct access to the apron.

With all the other attendant construction work going on for a third runway, Holland says: “We have got this quite interesting logistical challenge, to run an estate whilst developing an estate. But we have a plan, in phases, and it works.

“We just need to take it through due process with our customers, through the planning process and land ownership process and start to roll it out.”

Given a fair wind and not too many regulatory hurdles and legal challenges for Heathrow expansion, Segro plans to be on site by 2020 or 2021, starting a phased development that would probably be completed over five years. 

Segro has six large customers and six smaller customers within its Heathrow estate, compared with 60 or 70 customers for a typical London one. In addition, some of the original 1960s leases fall-in or come up for renewal in 2019.

When the horseshoe was first developed, some airlines funded the construction costs, and in return paid a small rent, a different model than today.

Observes Holland: “Some of those leases fall in 2019, so a number of options can happen: customers can stay and extend, and some have, signed ten years with break options. 

“Some may choose to go or will stay for a while and then like to stay longer but in a better building, so that we construct a facility on commercial terms that work for both parties.”

Holland describes the Heathrow cargo terminal development as “a game of chess where we are trying to choreograph all these moves and keep our customers' businesses alive”.

He adds: “We are juggling vacant possession, but that is what we do on lots of other estates, in London and the wider group. It is not awkward, just a bit more complicated here.”

Heathrow’s existing cargo area – taking an aerial view - falls into two parts, the larger part starts at the right hand side and the smaller units are on the left, which means, says Holland: “You will probably develop it left to right, creating an area, accessing it separately, building it and moving someone across.

“It is easy to say but in reality, a customer’s request for a building to be so big and so high would affect our plans.”

Is there a template cargo terminal elsewhere in the world that will serve as the model for the new look Heathrow airfreight estate: Schiphol, Hong Kong or Shanghai?

“There is no absolute number one that we are seeking to carbon copy or base it upon. Instead we have looked more at the characteristics of various airports and get the best ideas from the best airports around the globe.”

Segro looked at hubs in Europe, the Middle East, Asia and North America: “We have sourced ideas and knowledge from around the world, to pick out the best but also understanding where constraints are similar.

“It is about creating a cargo city that gives our customers the best space, because they are competing on a global stage.”

Segro wants to sit down with its customers and share its master plan at the appropriate time. Holland knows that the present site is a cargo village, with companies sharing space and working alongside one another, and this aspect will be taken into account.

“We will ask them how much space do you want? We think it works best like this, what do you think? Customers will be very keen to get their pens out and try to influence what we build”

Most of Segro’s property portfolio tends to be pre-let because customers increasingly have very sophisticated activities inside the physical building, so the landlord needs to make sure that the building is going to work for them.

“We are envisaging the cargo redevelopment to be substantially pre-let where customers can give us a brief and we will do our damnedest to hit that brief.

“We might not hit it entirely but we want to hand over the keys to a very happy customer. That's the plan.”

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