Harworth sells development land to Microsoft for hyperscale data centre

Harworth Group has sold a parcel of land near Leeds to Microsoft for £106.6m for the development of a hyperscale data centre.

The 48 acres of land at Harworth’s Skelton Grange site will be sold in two phases. The first plot, which comprises 27 acres, will be sold for £52.9m with completion expected in the second half of 2024.

The book value as at 31 December 2023 was £39.0m. Alongside completion of the sale of plot 1, the group will be reimbursed around £0.5m for the costs it has incurred in securing additional power capacity for the site. 

Plot 2, which comprises 21 acres, will be sold for £53.2m, with completion targeted for the first half of 2026. The book value as at 31 December 2023 was £12.9m.

Upon completion of the Microsoft transaction, including anticipated cost plan spend, Harworth will have invested £36.7m in the site and generated £135.7m of sales.

Upon completion, the sales are expected to deliver an internal rate of return (IRR) of over 40%.

Proceeds from the sales will be ploughed into Harworth’s industrial and logistics development pipeline, utilising its extensive landbank to grow its investment portfolio and drive increased recurring earnings.

The group’s has an industrial and logistics development pipeline totalling 38 million sq ft, and with 5.5 million sq ft of that already in, or about to enter into development, the pipeline has the potential to deliver gross development value (GDV) of £0.8bn over the next five years.

The company said that it was targeting an investment portfolio worth £0.9bn by the end of 2029.

It added that further sales from its development land should provide a steady funding platform for growth in its core industrial and logistics portfolio.

Background to the Skelton Grange development

The former Skelton Grange power station site was purchased by Harworth in December 2014 for £3m, with remediation and enabling works commencing shortly after. 

Since acquisition, Harworth has optimised the planning status of the site, securing approval in November 2023 for 800,000 sq ft of industrial and logistics space, and most recently in May 2024, approval for a further 320,000 sq ft of space.

Previous transactions that have contributed to the creation and realisation of value at this development include a 19.5-acre land sale to Enfinium in 2020, on which it is developing a 49MW energy-from-waste renewable electricity generation facility for its own operation, and the grant of a lease in 2021 to facilitate the development of a c.100MW Battery Energy Storage System (BESS) facility on a 5.7-acre site. Harworth acquired a further 21 acres of adjoining land in 2023 to enhance the development potential of the overall scheme.

The group will retain 16 acres on which to promote 250,000 sq ft of employment space. This is in addition to the 77 acres owned by way of joint venture with The Aire Valley Land LLP at a neighbouring development, Gateway 45.

Lynda Shillaw, chief executive of Harworth Group, commented:

“Since re-listing in 2015 Harworth has successfully completed a number of significant transactions that create value for our shareholders but this sale at Skelton Grange is the Group’s largest to date and is yet another exemplary case study that demonstrates the successful regeneration of brownfield land. It highlights Harworth’s capabilities in identifying and acquiring complex sites, creating planning-friendly masterplans that maximise site potential, and deploying timely and effective investments into remediation and infrastructure. This transaction further builds our expertise to include datacentres and evidences the growing spectrum of industries that continue to be attracted to the schemes that Harworth brings to the serviced land market.

“Over the last three years and, despite volatile market conditions, we have been successful in implementing our strategy, scaling the business and continuing to deliver market leading returns. We remain confident that we will reach our goal of growing our business to £1 billion of EPRA NDV by 2027 and in our ability to continue to scale the business beyond this. Despite this operational resilience, elevated share price discounts persist across the listed real estate sector, and so with the aim of maximising both total accounting returns and total shareholder returns for our investors, we have undertaken a detailed evaluation of our strategy to determine where our focus should be in the second half of our strategic plan period.

“Today, over 60% of the value of Harworth’s business is in the Industrial & Logistics sectors, and as we move into the second phase of our growth strategy we expect this weighting to increase, to over 85% by the end of 2029. The continued successful delivery of our Residential sites is integral to our strategy as the proceeds from land sales provide a steady funding platform for the Industrial & Logistics development programme. We will retain more of our own prime Grade A Industrial & Logistics directly developed properties and therefore expect to see our Investment Portfolio grow in coming years, reaching around £0.9 billion by the end of 2029. We see this increased focus on Industrial & Logistics development as an opportunity to both maximise shareholder value, and position the business for longer term sustainable growth and returns as we create an Industrial & Logistics business of significance in the UK market and within our regions.”