Shed Loads Of Money: Harworth, Segro Refocus On Midlands Industrial

Logistics developers are tooling up. Harworth is reinforcing its Midlands strategic industrial land operation — a new senior appointment is pending — whilst Segro takes the final step in acquiring Midlands-based big-box strategic land business Roxhill Management.

Is the Midlands about to enter a logistics land war? Or are both firms creating solid and financially stable Midlands regional bases as they wait for the economic cycle to turn?

Harworth, the industrial and residential strategic land business, has delivered another strong performance. Half year results, announced on 11 September, showed net asset value per share continuing to surge with 10.9% growth in its net asset value, ahead even of Harworth's impressive 10% long-run target.

Beds and sheds — their twin strategic land objectives — have paid off handsomely for Harworth, and the analysts are full of praise. During the first half it made more than £50M of acquisitions, which have development potential of up to 2,000 homes and around 1M SF of commercial floorspace including the 350-acre Ironbridge power station in Shropshire, acquired for around £5M. "We reiterate our buy rating and see attractive medium term value," Canaccord Genuity said.

The next stage of growth will be driven from the regions, Harworth said, and that chiefly means the Midlands and the North West. A new regional boss has been recruited for Manchester, where a five-strong team is being assembled. An appointment is now pending in Birmingham where a similar five-strong team is being put together.

“We’re committed to a regional structure for growth,” Harworth Group Chief Executive Owen Michaelson told Bisnow. “Our model is much more around local stakeholders so we want people on the ground. We’ve yet to announce an appointment for Birmingham, but we have two or three others working out their notice before joining us.”

“The immediate impact is going to be further announcements about new site purchases. Our business model requires us to move on, and we have already made purchases in Coalville and Ironbridge.”

They have indeed been purchasing heavily in the Midlands. In April they acquired two sites totalling 165 acres for around £4M. The first, Cinderhill near Denby in Derbyshire, involved the purchase of 112 acres of land across three separate parcels. Along with homes it could deliver 450K SF of commercial floorspace.

At Bardon Hill in Leicestershire Harworth acquired 53 acres of greenfield land adjacent to their existing major residential development at Coalville. He said 457K SF of manufacturing, distribution and roadside uses are envisaged.

The 240 acres of brownfield land and 100 acres of agricultural land at Ironbridge buy shows the way ahead, as developers are pushed towards larger, more difficult to exploit sites. "The redevelopment of Ironbridge Power Station requires an experienced regeneration company to sensitively handle the project," Michaelson said when buying the site in June.

“The Midlands market remains a key priority for the business as we continue to expand our presence in the region. With the continued undersupply of new homes and commercial space, there is good demand from housebuilders and commercial occupiers alike. This acquisition forms part of our ongoing strategy to become the UK’s leading regeneration company.”

However, within striking distance of Telford and the Black Country, Ironbridge is far from isolated.

“Anyone can employment and architect and get a great plan covering a site with houses, and the same with sheds. But you can only go into areas where the infrastructure will support economic development and where there is a workforce capable of supporting it, and getting the training they will need,” Michaelson said.

“More than ever larger strategic sites are about workforce issues, about attracting and retaining labour. Demographics are now a very important factor.”

For Harworth, a regional approach means stability in an uncertain world. "The stability of the regional markets in which we operate is secured by comparatively low prices, a continuing lack of consented and engineered land for housing, and the need for new commercial space where good quality stock is scarce," their half year results said.

"Growth forecasts for the ‘beds and sheds’ markets in our regions are favourable, with the Midlands and the North West forecast to have stronger house price growth than most other regions over the next five years and the industrial sector projected to continue to outperform both the retail and office market in the medium-term."

Harworth's push to regionalise comes as Segro — with a market capitalisation of £6.78B the U.K.'s largest listed property company — also doubled down on regional prospects.

Segro finally consumated their romance with Midlands-based industrial land and development management business Roxhill. The relationship — which first blushed into life in 2011 — took a massive leap forward in 2016 when Segro acquired an option on the business and an interest in a 10M SF regional big-box development partnership.

Two years on Segro has exercised its time-limited option to acquire the management platform of Roxhill Management Rugby Limited.

The transaction, which is scheduled to complete later this year, will create a single team, based in the Midlands, focused on the management and development of U.K. big-box warehousing.

Since the original agreement was signed, Segro has started work on the 5.9M SF East Midlands Gateway and is assessing the near-term development potential of a further five sites. Segro retains longer-term options over the remaining sites covered by the original agreement.

“By combining Segro’s and Roxhill’s teams, we will have the resources to deliver on our strategy to grow our big-box warehouse position in the two strongest logistics regions in the U.K. and the expertise and network to create an on-going pipeline of schemes in the future," Segro Chief Executive David Sleath said.

Harworth views Segro's new logistics land behemoth with the calm certainty that sooner or later Segro will have to do business with them.

"It is already a competitive and crowded market in the Midlands," Michaelson told Bisnow. "But we're usually a step ahead of these people. A lot of them end up as our customers because we are always working with funders and developers on sites. We are ultimately a land promoter and strategic planner, and that's why they are often our customer."

For now neither Harworth nor Segro see any reason to hover over the brake pedal: on the contrary, they are all set to accelerate their development programmes. But both know that in the industrial market nothing is quite so stabilising as a strong regional base. That is what both firms are now busy cementing into place.