Bringing opportunities

As usually happens, building new transport networks opens up development opportunities. In this case it is the Crossrail with its creation of new stations. Derwent, in collaboration with Crossrail, has put in a planning application for a mixed use scheme of 25,548 sq.metres to be built above the new Tottenham Court Road Station, to be called 1 Oxford Street.

The main part is offices of 16,443 sq.metres on eight floors, complemented by further offices and a new 350 seat theatre.
There will also be retail space. Derwent’s John Burns commented: “The planning application is an important first step in the much needed revitalisation of the eastern end of Oxford Street and is essential for the long term growth of Fitzrovia and Soho, where we have holdings of over 139,350 sq.metres.”

Derwent now has planning permission for a mixed use scheme of 31,214 sq.metres at 80 Charlotte Street, Fitzrovia, W1 plus more residential space at nearby 65 Whitfield Street and Whitfield Place. It will be part new build and part refurbishment to a design by Make Architects on an island site in the middle of Fitzrovia. It will have a capital value of £125 million. Public realm improvements bring the creation of a new park.

Derwent has also linked with Grosvenor for a mixed use scheme at 1-5 Grosvenor Place, next to Hyde Park Corner, that will feature a hotel, commercial and residential space. Just to add to the big list of Derwent projects, it has planning permission for another mixed use scheme of 27,034 sq.metres at the City Road Estate, EC1. This will be mainly offices with some retail and residential accommodation.

How long will the fun last?

The intriguing question in London is how long the inward flow of money into prime assets will continue, although the recent increase from Greece and Spain indicates demand is undiminished.

Apparently there are no limits to what can be sold with the German CLI Group Fund putting he iconic 28,910 sq.m. Lloyds Building on the market for £290 million for a yield of 5.5%.

A similar price is being asked for the 30,110 sq.m Tower 42, another landmark property in the Square Mile.

Knight Frank’s Stephen Clifton said: “Investors with global perspective can find best in class assets and tenant covenants in the city.” Adding to the attraction is that sterling is down 30% since 2007 and there is also the consideration of the euro being under pressure. The high prices available and the prospect of rental increases make this a perfect period for selling, particularly as some of the German funds show large gains.

One of the largest portfolios on offer is from KanAm which is using Knight Frank for the 34,373 sq.m. headquarters of the European Bank for Reconstruction and Development at One Exchange Square, EC2. Also in the portfolio, which could raise £1 billion, are Deutsche Bank’s Winchester House, Thomson Reuters’ 30 South Colonnade and Olswing’s HQ at 90 High Holborn.

Some of the selling is coming from the Irish, such as Shieldpoint, which is putting the 8,361 sq.m. Royal London House at 22-25 Finsbury Square on the market through Savills. This is the third time Shieldpoint has sought to sell city properties in the past two years. What is impressive in London is the wide range of investors. For example, the Canadian group Brookfield is prepared to pay over £300 million for the 42,734 sq.m. Broadgate West, EC2, from Gemini Commercial for a yield of 6%.

Big numbers for west end residential

Developers’ ambitions to build ultra luxury apartments in the West End are increasing as the flow of foreign buyers continues to grow, the latest being Greek and Spanish investors seeking safe havens for their cash.

Among the luxury projects is a proposed plan by Brockton Capital for a £400 million residential scheme on a corner site at 56 Curzon Street where it has been piecing together the land since 2007.

At the moment, the block has 35 flats and the new scheme would have a restaurant, garden, spa and underground parking. Initial estimates are that selling prices would be £48,420 a sq.metre (£4,500 a sq.ft.).

Another major residential scheme is for the Clarges Estate at 82-84 Piccadilly, a former office of the MI6 spy agency, which is expected to go to Chelsfield Partners for £170 million. The 1 acre scheme could mean similar prices to those
expected for Brockton’s project and comes at a time when there is a shortage of major sites for offices in the West End.

John Caudwell, who made a fortune marketing mobile telephones, has joined in the quest for luxury residential schemes in the heart of Mayfair. He has purchased Audley Square House for £143 million and plans a large residential scheme.

Caudwell said: “The intention is not just to re establish Audley Square as one of the most desirable residential areas in London, but as one of the most desirable in the world, with super prime properties appealing to the most discerning buyers and I believe traditional Mayfair architecture is the key to success.”

Summer high

Far from slowing down, office demand in central London rose strongly again in August with a 13% rise in the City pushing requirements up to 706,040 sq.metres (7.6 million sq.ft.). There was a contrast with the West End, said CBRE, where demand was steady at 445,920 sq.metres (4.8 million sq.ft.). Digby Flower of CBRE said:

“However, a fourth consecutive month that space under offer has remained at or above the ten year average reaffirms our belief that the second half of the year will witness an improved picture on the first six months.”

Further research by CBRE has shown that secondary property has taken over from prime in leading capital growth. Yields on prime central London offices have stabilised but have tightened on secondary property. “Yield compression on prime property looks to have run its course,“ said Peter Damesick, EMEA (Europe, Middle East & Africa) Chief Economist at CBRE.

London commercial property remains the best performing part of the UK with Midtown outpacing the other London areas throughout the summer. Iain Malcolm of Farebrother said “Total investment transactions and occupier take up in Midtown could match, or even exceed, pre recession levels by the end of the year. Demand from a wide variety of business sectors, low supply (6% availability rate) and a modest development pipeline has driven investor interest.”

The most notable recent lettings have been at UK & European’s recently completed 1 Kingsway, where the creators of the iconic Wolseley restaurant will be opening a new 13,500 sq.ft. sister restaurant at the end of this year. Tate & Lyle has taken the top floors (24,780 sq.ft.) for its new corporate headquarters at a headline rent of £67.50 per sq.ft. a benchmark for new space in WC2 in the current cycle and John Laing has just signed up on the 1st & 2nd floors.

One part of Midtown has been transformed with the first stage of the Chancery Lane Enhancement Project completed. It has brought a host of improvements from footpath widening and repaving as well as better street lighting. There has also been tree planting and new seating.

City of London Planning Chief, Peter Rees, said: ”This long term strategy has been carefully coordinated to preserve the unique character of one of the most historic and unusual streets in the City while also making it fit for purpose as part of a 21st century business centre.”

In fine fettle

What is clear is that the City office market continues in fine fettle, despite the woes of the national economy, with new developments and a flood of investment deals. The City of London has given planning permission for four new schemes, including greater height for Great Portland Estates’ and Brookfield Office Properties’ 950,000 sq.ft.100 Bishopsgate scheme. A similarly sized scheme is planned by Hines for 100 Cheapside, where Canary Wharf Group was originally the front runner, while Rockspring and Chesterfield Asset

Management have planning for a slightly smaller scheme at Centurion House, EC3. Rockspring’s Richard Bains said: “Since acquiring the project last year, we have drawn up ambitious plans to create an entirely new ground up development which will appeal to a wide range of city occupiers.” The largest development getting planning permission was City Site Estates’ 11 storey scheme of 12,077 sq.metres (130,000 sq.ft.) at 51 Eastcheap, EC3. One scheme that already has planning permission is Hammerson’s £485 million Principal Place, E1 project. Now Hammerson is seeking a partner for the 50 storey residential element of the 73,856 sq.metres (795,000 sq.ft.) development which will have 243 private and 56 affordable units.

Getting the best return

One West End site that will be developed mainly for offices is 8-10 Hanover Street which has been sold by LaSalle Investment Management to Morgan Capital Partners for over £25 million.

The property has planning permission for a mixed use scheme for offices of 2,321 sq.metres (24,984 sq.ft.), together with retailing and six apartments.

“The sale of this asset is the culmination of a process of site acquisition, planning, design and construction development which has resulted in superior returns for our pension fund client,” said LaSalle’s Richard Maple.

Backing technology

The days when the City was a jealous guardian of its role as the top global financial centre has shifted to a more subtle position.

That earlier hostility was mainly directed at Canary Wharf, which is now a fact of life and has added to the global appeal of London. The new role is to foster the creation of an East London Tech City stretching from a roundabout in Shoreditch to the Olympic site in Stratford. Young entrepreneurs and new start ups are flocking to the area around Silicon Roundabout. Simon McGinn of the City of London said: “The City Corporation has facilitated the start up of an Innovation Centre in Smithfield which provides advice and guidance to SMEs (small and medium enterprises).

In fact, we have already actively supported the SME community for some years through the provision of affordable accommodation in City fringe areas.” He noted that the government was pushing the initiative hard with its vehicle, the Technology Strategy Board, having a £200 million war chest to help the high tech industry. In fact the government has taken its role to promote the Tech City aggressively as witnessed by its support for Eric van der Kleij as UK’s Trade and Industry’s“entrepreneur in residence.”

Also, Intel has thrown its weight behind Tech City, earmarking a supercomputer, capable of handling 2.25 trillion calculations per second, for startup companies in the area to use free of charge. The City of London has sponsored a scheme known as “Angels in the City” to recruit 125 investors prepared to put seed money into new companies. The scheme is in cooperation with the London Business Angels and aims to generate £10 million in new investment annually.

What attracts the young businesses to the area is that costs, notably rent, are relatively low and they are physically close to sources of funding in the Square Mile.

Access to these young companies is one of the reasons why Google and Cisco have moved into the area. McGinn points out that “it is hard to plan a cluster of like minded companies and entrepreneurs but in the case of Shoreditch there was already the framework for high tech operations because the creative industries had already moved in.”

The competition from other parts of Europe, notably Berlin and Dublin, is fierce. The advantage in London is the adjacent pool of wealth through individuals and financial institutions plus the experience of the City of London.

Rebuilding Bromley

Bromley has joined nearby Croydon in ambitious plans for town centre regeneration.

The Bromley master plan names 12 opportunity areas for offices, hotels, housing and, in particular, shops, in a £1 billion plan that will need private developer involvement. Among the sites is one west of the High Street that could have 19,974 sq.metres (215,000 sq.ft.) of shopping and 1,180 residential units. Included in the proposals is a major extension of the Glades Shopping Centre.

Two sites have already gone to developers; Land Group will turn the town hall into a 150 bedroom hotel and Cathedral Group will embark on a £300 million scheme in Westmoreland Road.

In the case of Croydon, the master plan for the key site between George Street to the north and the High Street to the west, in the heart of the metropolitan centre, has been up for public consultation in September and October.

The area has some impressive buildings, such as the art deco Gas Board property and also the headquarters of Nestle UK, but it suffers from a poor quality public realm and the legacy of the 1960s St George’s Walk Shopping Precinct.

Bromley based Jeff East of Acorn has already put together a deal for a Travelodge in the town, one of four in the immediate area, the others being in Sidcup, Bexleyheath, and East Grinstead (which will have a Wilkinson store as part of the scheme).

"Generally speaking the lettings we have transacted have been small. The investment activity has been from private buyers, such as the portfolio of 11 freeholds we sold, three of them let to Swintons," East said. He noted that business had become harder in the past two months "but we have had a good year and double that of 2010."

Gateway Starts

With funding agreed, preliminary work is starting on the Mersey Gateway project that will bring a six lane toll bridge between Runcorn and Widnes. Steve Nicholson of Mersey Gateway said: “The agreement represents the best possible deal for the public purse and means that we can focus on delivering a project that will bring benefits to local people, commuters and businesses across the region.” It comes at a time of increased development activity in the area, epitomised by Peel getting the green light for the £175 million Trade Centre in the Wirral Waters scheme at Birkenhead Docks. Also in Merseyside, Barnfield Centric, a joint venture of Capital & Centric and Barnfield Construction, has started building the 7,618 sq.m. at the Estuary Banks Business Park, Speke, South Liverpool. The scheme has been helped with £2.54 million from the European Regional Development Fund.

The twenty hybrid units can be used for offices, research & development, light industrial and warehouse accommodation and come in a variety of sizes.

Cauldwell joins Prince

The role of local entrepreneurs in regenerating their areas has been a key factor in many parts of the UK, not least in the North West through John Whittaker of Peel.

Now we have John Caudwell, who created a successful mobile phone business employing thousands in Stoke-on-Trent, with his involvement in the conservation and regeneration of the Middleport Pottery in his home town.

This has also become another project for the Prince of Wales’ charity, Tthe Prince’s Regeneration Trust. The objective is to create local jobs, attract new business to the area and ensure that production of the Middleport blue and white Burleighware remains in Stoke.

“In an era of invisible and largely electronic economy, it is sometimes forgotten that everything we know today was built on an industrial and manufacturing revolution, which bred incredible craftsmen and products and made Britain a manufacturing powerhouse.

Coming from an engineering background myself, I really appreciate the skills required in making and producing quality products,” Caudwell said.

He added that “nowhere on earth are the skills and craftsmanship of working with clay, water, heat and colour so deeply imbedded in the DNA of the population and it is crucial that this is preserved in Stoke.”

Stoke already benefits from the skilled development by St Modwen, which has now submitted a planning application for the latest phase of the Etruria Valley development, an area which is at the heart of the city’s pottery history.

This will see an increase of 16 acres in the Etruria Valley Business Park, which is part of the wider Festival Park area, once the home of the Shotton Iron and Steel Works. The joint venture of St Modwen and the city’s regeneration company aims to build a mixture of offices, manufacturing and storage space.

Since the regeneration plan for the area was launched in 1988, there has been development of 125,415 sq.metres (1.35 million sq.ft.) which has included a large contact centre for Vodafone and a new factory for Wade Ceramics.

Backing Birchwood

Cantt Pak has added to its holdings in Birchwood Park, Warrington by buying Washington House and Allday House advised by Pin Property Consultancy, whose MD, Nasira Majid, won Woman in Property and Outstanding Business Woman of the Year awards at the first North West & Isle of Man Women in Business Awards.

The two buildings total 9,755 sq.metres (105,000 sq.ft.) with Washington House occupied by URS, an engineering consultancy, while Allday House is empty. Imran Younus of Pin said: “We will soon announce details of the refurbishment programme that will totally transform Allday House. We have already had interest from potential occupiers.” DTZ acted on the acquisition. Also in Warrington, Allen & Appleyard has taken the 1,505 sq.metres (16,196 sq.ft.) Unit 3, Taurus Park, Europa Boulevard.

Pannone in the market

Yet another major Manchester based law firm is seeking a large new headquarters in the city. Pannone wants to move out of its Deansgate building by the spring of 2014 and is using p3 to find a site of 8,826 sq.metres (95,000 sq.ft.). It has 620 staff in Deansgate, Hale, Alderley Edge and London. Pannone Managing Partner, Emma Holt, said: “We have spent a great deal of time this year finalising our strategic growth plans to position the firm to capitalise on opportunities in the evolving legal market.” She indicated that Pannone might go for two properties in the city centre to cope with its needs.

Catering for the media

In the competition to attract new investment, Manchester has stolen a march on many cities in the UK and Europe by having a major new media complex in Salford Quays.

The scheme by Peel that has brought in the BBC and ITV is of such a size that it has impacted on the whole UK media industry o the point where a wide range of companies catering for media want to be located in the region. This potential has prompted Canning O’Neill to start a new company focusing on the needs of the media, a sector of the economy that was already thriving in the region with a considerable history, including being the most important newspaper centre in the north of England for many years Mark Canning said: “We have seen a dramatic increase in enquiries from media companies and realised there was the potential for a company focused on the industry. In my view, this is the most important trend I have seen in my 22 years in Manchester.”

Among the initiatives from Canning O’Neill is a website devoted to the media industry This is not something that has come out of the blue, because they already had considerable experience of dealing with media requirements.

“We have been involved in filming, notably at the Soapworks,and are familiar with the needs of media companies,“ said Canning. The creation of a new company at a time of tough economic conditions speaks for a degree of optimism. Another new company is Capital & Centric which brings together two North West developers, Tim Heatley and Adam Higgins. Both have considerable experience, with Heatley having been a director of Modus while Higgins has been with Peel, Ask and Manchester Property Alliance Group.

The company’s strategy is to build a portfolio organically without exposure to excessive debt. Heatley said: “The current market provides an opening for companies run by individuals with extensive experience but without the legacy of servicing debt with their portfolio.”

Axa build

Axa Real Estate Investment Managers are likely to be one of the gainers from the current market having received planning permission for the £50 million office scheme at St Peter’s Square. It manages this property on Dickinson Street, fronting St Peter’s Square, for the Co-operative Insurance Society and will now develop a property with a 12 storey structure of 10,033 sq.m. more than double the existing building. WHR and CBRE are lettings agents for a project that apparently depends on a pre let to trigger construction.

The property will meet the top BREEAM standards on sustainability. Axa’s Dorrien Thomas said: “In recent years, Manchester has firmly established itself as England’s premier business location outside London and we are confident that the new development’s prime city location, together with the quality of the space, will make it an ideal destination for local, national or international businesses.”

Going bust

Judging from the latest figures for business failures, the economy is having a hard time picking up speed in the region. According to Equifax, the failure rate of businesses in the North West increased by 9.1% in the third quarter compared with the same period of 2010. In fact, that is half the national rate.

To some extent the figures should not surprise since retailing has had a bad period with a 41.8% rise in failures. Mark Nuttall of Equifax commented: “The North West has seen failures creep up by 10%, which highlights the overall UK picture and suggests that businesses everywhere need to remain cautious. The reality is that businesses are continuing to find it much harder to keep their heads above water as the economy fails to pick up.”

Attracting investors

F&C Reit Asset Management has bought the 7,060 sq.metres Boulton House, Chorlton Road, Manchester. F&C’s Daniel Plummer said: “We recognise Manchester attracts top inward investors and is a continuing base for existing businesses resulting in a strongly performing occupational market.” Greg Ball of Jones Lang LaSalle, letting agents on the property, added that F&C “take a competitive approach to quoting rentals and offer flexibility, as we intend to subdivide one floor into small suites.”

Holding up

It may surprise the more pessimistic forecaster in the UK, but the regional commercial property market is holding up well and is set to at least match last year’s outcome.

Among the major cities, Manchester has the best balanced market, helped by the scale of its economy and strong entrepreneurial spirit as exemplified by Media City and Spinningfields.

What is happening is that the downturn in the UK economy is providing a test for all regional economies and markets and those with the greatest resilience are emerging as stronger entities. To some extent the fierce competition between Manchester’s two football teams illustrate that spirit.

Analysing the first nine months’ figures for regional office markets, Jones Lang LaSalle (JLL) expects aggregate take up by the year end to equal 2010. JLL notes that in the third quarter rents in Manchester increased by 5.3% on the
previous three months and the Grade A vacancy rate is only 2.1%. Given the tough market, those are impressive figures. Even so, Peter Skelton of Lambert Smith Hampton said: “The market is extremely quiet and it appears that a short term approach has returned bringing a lack of decision making.

That contrasts with the start of the year when there was expectation that we were overcoming the financial problems in the UK.” In his view, the office market lacks direction and there is no confidence that it has reached the bottom. One of the future problems could be the amount of property that will be released by the banks holding it because of bad loans.

So far, financial institutions have been unusually careful in the release of this property but some is being filtered out, notably from Irish sources. In fact, the overall picture of the market can be painted in brighter colours because of planned new development and demand from large companies. An indication of the demand is that there are requirements for at least 27,870 sq.metres (300,000 sq.ft.) of Grade A offices, led by BUPA with a need for 13,006 sq.metres (140,000 sq.ft.).

The impetus is that a majority of its leasing contracts end in 2015. Another major requirement is from Jacobs Engineering for a regional headquarters of 9,290 sq.metres (100,000 sq.ft.). In this case there is the question of whether the company takes existing space or goes for the option of design and build. Also in the market for a large office is the insurance company Aviva.