“Bywater really took off when I left to sell frozen peas for a living,” says Richard Walker.
The managing director of supermarket chain Iceland is sitting in the former Costa Coffee Roastery in Lambeth, SE11, a vast and desolate warehouse the interior of which is emblazoned with vitriolic graffiti (‘Die Costa!’ being among the more printable messages). Bywater Properties, a property firm Walker chairs, acquired the site from Whitbread, which sold Costa to Coca-Cola in 2018 for £3.9bn.
Last year Iceland pledged to become the first major retailer to eliminate plastic packaging for all its own-brand products by 2023. Now, Walker is turning his attention to sustainable office development through his other business.
Bywater plans to bring forward a 60,000 sq ft office at the former Costa site, 30-34 Old Paradise Street, built predominantly from timber sourced from Austria. It promises to be carbon negative for the first 60 years of its life, including transporting the material to London.
People don’t just want the shiny office building in a vanilla location; they are also comfortable with something a bit different
Walker is better known for running the British supermarket chain, founded by his father Sir Malcolm Walker in 1970, but he has in fact been involved in property since the early 2000s. He has chaired Bywater since co-founding the business in 2006, stepping back from the day-to-day running of the company in 2013 to work full time at Iceland.
“I almost feel about Bywater like my dad does about Iceland,” he says. “It is my baby, named after the street I used to live on in West London, so it’s immensely important to me that the business continues to do well.”
The firm is primarily office-focused and has schemes under way in Belfast, Glasgow, Manchester, Liverpool, Reading and Peckham.
But it has ambitions to ramp up its offering in London and forge a new path for more sustainable office development. Fresh from acquiring the Lambeth site from Whitbread, the firm still has £200m to deploy in the London office market.
Dreaming big over a G&T
It is a far cry from the business’s early roots. Back in the early 2000s, Walker teamed up with fellow former JLL graduate trainee Theo Michell in a bid to crack the Polish property market. In London the pair had grown frustrated by the challenges of breaking into the capital’s competitive, debt-fuelled property market.
“Theo and I would always sit in Caffè Nero on Regent Street and hatch plans about trying to go out on our own and do something cool,” Walker says. “I remember being at Theo’s flat in south London and buying the domain name for Bywater at midnight after a couple of gin and tonics, and dreaming big.
“All these countries were joining the European Union and Poland was the biggest size and still relatively untapped.”
Walker flagged the opportunity to JLL, where he and Michell worked at the time, and subsequently moved out to the agency’s Polish office. “After about six months I’d found my first deal and was ready to roll [with my own business],” he says. “Theo joined me pretty quickly afterwards.”
The pair started in a small office with no windows, staying there for a year and slowly building up the business. “Our sweet spot was below the radar of the institutional investors,” says Walker. “If it was more than an hour’s drive from the airport they wouldn’t see the building, so we were quite regional in our focus. We were below their radar and above the affordability of the local investor.”
The firm built a €30m portfolio of residential, retail and offices. But then the global financial crisis hit. “We had a joint venture at one point with Lehman Brothers and we had to extricate ourselves from that when they went bust,” Walker says. “On paper we were making fortunes but at the end of it we made nothing. But we hadn’t lost anything either so it meant we could sit out of the UK market. Thank God, because if we’d have set up there in 2006 we would have been dead by now. We were able to re-enter the UK market in 2009.”
Michell adds: “That initial phase out in Poland was a brilliant test run. We built a business, closed a business, took on debt, hired a team, fired a team… We did everything within a four-year period. Then we had the opportunity to come back to the UK and start again.”
Something different
Since relaunching in the UK, Bywater is looking to expand its reach in the capital. “We have £200m to deploy in London offices,” Michell says. “That’s a fresh pot and the types of deals will be relatively similar to Lambeth although we may do less ground-up development. It will be more office refurbishment and repositioning focused. We will target roughly £10-25m of equity per deal or larger if we go into more established markets.
“We view this as the next iteration of Bywater. For us it’s a real focusing of investment intent and what we think of as phase two, post our Poland phase.”
He adds that timber new-build as well as extensions and refurbishments will “form a core part” of the new investments.
The firm’s capital comes from high net worth individuals and family offices as well as the personal wealth of its three partners: Walker, Michell and Belfast-based Patrick O’Gorman.
As Walker notes: “We personally are heavily invested so we live or die by our decisions.”
Bywater will focus on off-beat parts of London which could draw in alternative types of occupiers, Michell says.
“What we love about the Lambeth deal is that you’re just in one of those little in-between pockets London is full of,” he adds. “You have Waterloo on one side, Westminster and Nine Elms on the other, where rents are as high as £70 per sq ft. Our underwrite here is way below that, so you’re sitting in one of those pockets of value that is getting squeezed by everything happening around them.”
He adds that Bywater will also target Elephant & Castle, Clapham, Battersea and the Old Kent Road. “These are becoming attractive areas in tune with the dynamics of the occupational market; people don’t just want the shiny office building in a vanilla location; they are also comfortable with something a bit different.”
From Austria to Lambeth
Bywater’s latest project is certainly likely to be different, given that timber office construction remains relatively rare. In London, British Land owns a 34,000 sq ft timber-based building in Hackney on Orsman Road, while Blackstone’s The Office Group is redeveloping its 48,000 sq ft Black & White building in Shoreditch using timber.
At 60,000 sq ft, the Lambeth development could be the largest predominantly timber-based office in the UK on completion. The firm aims to file a planning application for the scheme next month. Subject to approval, it hopes to start on site next August with completion slated for spring 2022.
Bywater is holding a public exhibition about the project in the former Costa Roastery, which it claims has gone down well with local residents.
Indeed, as Walker’s gleaming car glides up to the warehouse gates, he is met by a passing resident and former employee of the roastery. The resident is enthusiastic and keen to learn about the redevelopment plans, putting in a request for a tour of the warehouse he worked in when he was 19 years’ old.
With the built environment responsible for almost 40% of energy consumption in the EU, landlords are under pressure to commit to making their portfolios more sustainable, and so projects such as Bywater’s are likely to become more common.
“We feel it’s not enough to be a passive observer of these issues and we’re continually questioning what more we can actively do,” Michell says. “Despite making steady improvements the cement industry remains a major emitter. When we bought the former Costa site one of our first challenges to the design team was, ‘What about doing this in timber?’
“The thesis is, and it’s not without its challengers, that because you are effectively taking a tree and locking it into the structure of the building, the structure itself locks away the carbon. Every tree that is cut is then replanted.”
Walker adds: “People are really awakening because the built environment accounts for so much of all global emissions. It’s terrible. Fine, the property sector has gone a long way in reducing carbon in use, but efforts to cut down embedded carbon have been woefully slow.”
Timber construction has been slow to take off but in a city still building greenhouses in a climate emergency, with glass-fronted offices that are difficult to cool, it could provide a viable alternative direction. And one that Walker will no doubt pursue as tirelessly as he has done with similar projects in the retail sector.
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