The improved climate for development is likely to lead to the Lumiere scheme on Wellington Street, which was originally slated to be a residential tower, being developed commercially.
Ripley Capital and Axa Real Estate Managers have teamed up to acquire the site from Lloyds Banking Group. The property was designated to be Europe’s tallest residential tower but is now in the hands of the Receiver, Deloitte.
The new plans calls for a 1,1148 sq.metres scheme of offices and shops on the ground floor. Meanwhile, Legal & General, advised by Jones Lang LaSalle, has paid Danmerc £14.38 million for the 4,755 sq.metres office property at 1 Whitehall Quay, an initial yield of 7.88%. The largest investment deal, however, was RREEF buying the 9,011 sq.metres Lateral office building on City Walk, Leeds for £24 million from DTZ acting as the LPA Receiver.
The property is let to the Department of Communities & Local Government. In another major deal, a prime Leeds shopping arcade that boasts some of the UK’s top retailers has been put on the market by the Bank of Ireland Private Banking. The 20,903 sq.metres Grade II listed Victoria Quarter has been given a price tag of £135 million for a yield of 5%, reflecting the quality of the high end occupiers such as Harvey Nichols, Wolford and L’Occitane. The bank paid £126 million for the arcade in 2006 and there have been off market efforts to sell it for some time.
Viability of the Bristol Temple Quarter Enterprise Zone has been improved by the inclusion of residential development.
That is the view of Gordon Isgrove of GVA, saying that the Enterprise Zone should look to Bristol’s Harbourside for inspiration on how to achieve a 24 hour city. Isgrove said: “The new Enterprise Zone has laid out a vision of being a hub for creative and digital industries. I should urge those planning the zone not to overlook the benefits of including an element of residential use to create truly mixed use and creative development.” In his view the success of the zone will not only be the number of jobs it creates but also the establishment of a sustainable city quarter where people want to live and work and prove an attraction to property investors over the long term.
The zone will play an important part in the growth of the city because it aims to create 17,000 jobs over a 25 year period, although some doubt has been cast on whether this can be achieved solely with creative and digital industries. That said, the letting of space in Bush House, one of the most prominent buildings in Bristol, to Yucca, a digital marketing agency, indicates a demand from that sector even if it has taken a small amount of space. Ben Martin of Yucca commented: “Bristol has been establishing itself in the past few years as a creative hub for the digital media.”
Bath is also due for a substantial new development through St James’s Investments and Tesco. The £50 million mixed use scheme on the site of the former Bath Press site has been modified to increase the amount of commercial space.
The new proposal is for a Tesco store, 4,554 sq.metres (49,000 sq.ft.) of creative work units, 2,834 sq.metres (30,500 sq.ft.) of offices and 10 residential units. This would make the joint venture the largest provider of workspace for artists in Bath.
There are signs that Bristol is heading for an improved office market that will put it back in the spotlight as one of the top regional cities.
The growing shortage of Grade A space indicates that speculative schemes could be once again on the agenda and that rents will respond. At the moment, said Simon Price of Alder King, “the city centre is polarised around a considerable amount of empty second hand space that is unlikely to be let in the near future.”
The likelihood is that space will be refurbished for a variety of uses and in some cases demolished for new schemes. “We now have five or six active enquiries for sizeable amounts of space of between 2,323 and 6,503 sq.metres (25,000 and 70,000 sq.ft.) and believe the growth prospects are good for the next 12-18 months,” Price said. He has two clients examining plans for new development, a sensible policy given that supply of Grade A is only sufficient for just over a year. As far as rents are concerned, the top rate is £296 a sq.metre (£27.50 a sq.ft.) which will now apply to new schemes. The expectation must be for incentives to narrow.
Although take up declined by 47% to 8,0822 sq.metres (87,000 sq.ft.) in the second quarter, there was, said DTZ, “greater interest in highly specified Grade B which offers more options and flexibility for mid sized professional firms.” The consensus is that take up will be around the same level as 2010 although this could be beaten if Axa take the sizeable amount of space they have indicated they need in the future. Indeed the financial sector was more active with some firms seeking space that they can grow into. The investment market reflects the improving situation “with a tentative equilibrium at the prime end and a contrast with the secondary properties which will be re priced.”
Although the regional office market was boosted by a number of large deals in the second quarter, such as the Ministry of Justice and Deutsche Bank in Birmingham, the lower end of the market is still the most active. That is the view of DTZ in a report that also highlighted the strengthening demand from smaller professional firms.
Apparently some of these were on flexible terms during the economic downturn, but are now seeking to take advantage of the current market to upgrade to better accommodation.
It could indicate an improved market for new developments in the Midlands in the main cities. Matthew Long of DTZ said: “Take up in Birmingham in the second half is forecast to reach 18,580 sq.metres (200,000 sq.ft.).” He reiterates the problem that Grade A stock will continue to fall so that rents will edge up in early 2012.
In fact the new lettings are an important indicator of the market situation with the Law Society likely to move its Midlands headquarters to the 5,110 sq.metres (55,000 sq.ft.) 2 Colmore Square developed by Nurton; accountants Grant Thornton expected to take half that amount in Colmore Plaza and another accountant, Boomer Heaven, moving to Rutland House. Note that they are all professional service organisations. International players such as Hines have experience of when to move into markets.
In the case of Birmingham its Pan-European Core Fund has bought the 3,998 sq.metres (43,040 sq.ft.) One Eleven Edmund Street from IVG for an undisclosed sum. It also owns Brindleyplace and Two Snowhill through other vehicles.
Derby has also improved with a number of new developments. Tesco plans a large store at Allanton while at Sandiacre it will go for a mixed use scheme including a store. But the largest development is on a 15 acre site of the Derby Royal Infirmary for a Morrisons supermarket, hotel, offices and 400 homes.
Now is the time to move away from the stifling worry about the economy and look ahead to a healthier situation of growth, That would seem to be the message from Birmingham where the council is going for a Big City Plan for future development in 2,000 acres of the city centre with one of the government’s new enterprise zones.
Of course, the city has been pursuing an enlightened urban renewal programme for years, including using funds from the European Union for some projects. It is now applying for £20 million from the European Development Funds (ERDF) to help the development of business accommodation, office and industrial projects.
There are a host of private sector developments in the pipeline, many of them stalled by the fragile economy. A new scheme is from Sahlia Investments of Kuwait for a mixed use scheme costing £150 million in the Beorma Quarter and is adjacent to the Selfridges store and the Bullring Shopping Centre. Sahlia is seeking funding for the scheme from Barclays Corporate for the 60,199 sq.metres (648,000 sq.ft.) which will have a 200 bedroom aparthotel and a 27 storey 31,603 sq.metres (340,183 sq.ft.) office block together with a refurbished cold store.
The improvement in the urban areas are also a priority, hence the work on Church Street public realm in Colmore Business District (CBD). This high quality designed area will bring wider and new pavements, landscaping, trees and other associated works.
CBD which is one of four business improvement districts in the city centre is contributing £250,000 towards the total cost of £750,000 for the project. Gary Cardin, Chair of CBD said: “The new square will add to the public realm improvements promoted by us across the commercial heart of Birmingham and be a showcase for high quality, pedestrian friendly open spaces.”
These improvement plans come at a time when the city centre office market is only in moderate health, although the second quarter take up was 14,678 sq.metres (158,000 sq.ft.) mainly due to several large lettings, such as the Ministry of Justice for 3,530 sq.metres (38,000 sq.ft.) at Axis, But the Grade A stock has now fallen again, continuing the three year long process. Craig Satchwell of Colliers International said: “Grade A stock is now at its lowest level for three years.
Worryingly, there is just one scheme with a speculative element currently on site, Hines and Ballymore’s Two Snowhill, which will not be completed until 2013.” He predicts that there will be an increase in refurbishment of existing properties together with pre lets for speculative schemes.
The improved climate for development is likely to lead to the Lumiere scheme on Wellington Street, which was originally slated to be a residential tower, being developed commercially.
