At a disused coffee factory in west London, Britain's largest listed industrial property developer is embarking on what it hopes will become a new approach to easing the capital's housing shortage.
As well as converting part of the 30-acre (12.1 hectare) site into warehouses, Segro Plc (SGRO.L) has set aside some of the land for new homes -- an unprecedented step for a company that has spent the best part of a century reshaping industrial land.
"London needs jobs along with housing," said Alan Holland, director of Segro's Greater London unit. "The two can sit side-by-side very well."
Segro's entry into the housing market is symptomatic of a property shortage in London that, along with record-low interest rates, has contributed to a sharp rise in house prices over the last two years.
Its dual-track approach at the former Nestle plant in Hayes will allow the company to profit from the premium value of residential land while also supplying floorspace for e-commerce and other modern industries.
Segro's masterplan to create a mini-community inside the M25 orbital motorway is also a step into the unknown, the success of which could hinge on attracting companies able to operate with minimal disruption to the homeowners next door.
Rival industrial property developers, such as Prologis Inc (PLD.N) and Goodman Group Pty Ltd (GMG.AX), have so far preferred the tried-and-tested method of redesignating suitable land for sale to a specialist residential developer.
With London needing some 50,000 new homes annually over the next two decades, according to property consultant Savills (SVS.L), abandoned industrial land is much in demand. The government pledged in November to release more such land for starter homes.
Nine Elms is perhaps the best-known example of such regeneration. The industrial strip along the south bank of the River Thames, which includes the disused Battersea Power Station, is being converted into about 20,000 new homes.
Property developers have much to gain from the switch: in London's northwest, for example, residential land values were 54 percent above the average for industrial land in 2015, according to Savills.
Segro has the advantage of owning industrial land so coveted by housebuilders. Its long history in the business -- the company began life in 1920, as a syndicate that acquired workshops and surplus vehicles from World War One -- also puts it in a strong position to acquire new sites.
Industry contacts, said Holland, were key to its off-market acquisition of the Hayes site, the value of which will be enhanced when the local rail station becomes part of the capital's planned high-speed Crossrail network.
FINDING A PARTNER
Four years ago, Segro began a major overhaul that resulted in its exit from several European markets and a renewed focus on e-commerce operations.
The company's shares, which closed at 425.1 pence on Friday, are worth less than a third of their March 2007 peak, hit by the financial crisis and the decline of traditional manufacturing industries.
They have, however, risen about 2 percent over the last 12 months while shares of Prologis and Goodman have fallen roughly 14 percent and 9 percent respectively.
Segro's trades at a 31.4 percent discount on a trailing price-to-book basis to its two peers, according to Thomson Reuters data, meaning it is the cheapest to buy.
David Brockton, analyst at Liberum, said the premium value of residential land would help offset the risk attached to the development of the Hayes site, provided Segro uses third parties in areas "where they don't have specific capabilities."
Segro, which had a Greater London portfolio worth 2.56 billion pounds ($3.7 billion) as of June 30, plans to partner with a residential developer, the identity of which will be revealed by April.
Each partner will fund their respective plots separately but speak with one voice when dealing with planning authorities and other interest groups.
"Mixed-use schemes provide an opportunity to maximise returns on land in a market where construction costs have increased significantly and potential returns are eroding," said Brockton, who has a "buy" rating on Segro's stock.
They also face challenges. Few residents would choose to live next door to a noisy, round-the-clock warehouse. Companies, in turn, might think twice before moving into a site where complaints from local residents might restrict their operations.
One option would be the installation of soundproof barriers, although that would entail significant cost and take up valuable real estate.
"Developers will find it difficult to make it all stack up in terms of viability," said Mark Webster, head of the UK national logistics and industrial team at Cushman and Wakefield.
The juxtaposition has worked in other parts of Britain, though generally on much larger plots.
Goodman Group and a local partner redeveloped the old Jaguar Cars plant in Coventry, central England, into industrial sheds and offices before selling a patch of the 100-acre site to housebuilder Taylor Wimpey Plc (TW.L).
Working in London, in direct partnership with a housebuilder, is a different approach, something that Segro's Holland says requires a "common vision."
"The two parts need to be integrated, rather than wholly separated," he said. ($1 = 0.6896 pounds)
(Reporting by Esha Vaish in Bengaluru; Editing by Robin Paxton and Keith Weir)