The British newspaper industry is under the cosh, coping with the threat of heavier regulation, fighting to keep pace with the digital revolution and trying to remodel its finances. No wonder, says Jack Sidders, newspapers are cashing in on some of their most valuable assets – their property portfolios
The British print media has made headlines this year, and not just for the predictably wrong reasons. While most of the national newspapers were engaged in an orgy of self-flagellation at the Leveson enquiry, their media baron bosses have been concocting a succession of major property deals.
One after another, the big “old media” brands have made their moves: downsizing, selling off or leaving central London. Not since the seismic shift away from Fleet Street in the 1980s has this traditionally immobile occupier proved to be such a rich source of ink for the property press.
News International hit the headlines in May with its sale of Fortress Wapping, cashing in on London’s luxury residential boom with a £150m sale to Berkeley, while the Financial Times‘ parent Pearson appointed DTZ in July to explore options for a new headquarters.
It too looks set to cash in on the appetite for prime residential, with expectations that it will seek a consent to convert its South Bank site to residential before developing an HQ in the same part of town.
Richard Desmond’s Northern & Shell, publisher of the Express Group of newspapers, caused a flurry of interest just under a year ago with its move to Luton. And the Daily Mail & General Trust’s sale of Harmsworth Quays to British Land, signed in the summer, could provide more headlines yet.
Southwark council is apparently “exploring its options” as it seeks to force the REIT’s hand into developing lower-value industrial instead of extending its shopping centre and building flats.
So what is behind these deals that have landed the papers’ owners on the business pages and where will it go next?
Stop press
“The digital revolution is pressing on all of them,” says Radio Four Media Show‘s host, Guardian columnist and media consultant Steve Hewlett. “Analogue pounds have turned into digital pennies so while the online numbers are large, the money is small.”
Almost all of the national newspapers are losing money, says Hewlett. The Guardian website might reach more than 60m unique users a month, but the paper loses around £40m a year.
The Times and The Sunday Times, which went behind a paywall and saw its online readership plummet, loses £11.6m, according to accounts filed at Companies House.
Even MailOnline, which, according to Comscore, briefly became the most read newspaper website in the world in January this year, has only recently begun to turn a profit. It announced in July it was now in the black thanks to an 80% increase in revenue.
DMGT, which owns the website as well as its print brand and a stable of local newspapers, posted a £46m pre-tax profit last year, a 37% fall.
But if most have already completed high-profile property transactions, will there be more moves to come? “In terms of where they are on the road to digital survival, we are nowhere near the end,” says Hewlett. “In fact, in some cases they are rather too near the end of the road altogether.”
So what can be gleaned from the deals already done to predict where future activity will come from?
The story so far has been largely industrial.
First, we pick apart the biggest transaction of the year, News International’s £150m sale of Fortress Wapping, E14, to Berkeley-owned St George.
The 15-acre site was once home to the Sun, The Times, The Sunday Times, the News of the World as well as their printing presses. News International began the process in 2005 when it announced plans to relocate its printing function.
The newspapers – minus the NOTW – are now printed in Glasgow and Liverpool and at the world’s largest print plant in Broxbourne, Hertfordshire, where 12 state-of-the-art presses cover an area the size of 23 football pitches.
With so much vacant space left at Wapping, NI quickly set about moving editorial staff to the nearby Thomas More Square, E1, a move completed in 2010, which paved the way for a sale.
The site, which will become known as 1 Pennington Street, E9, now looks set for a mouth-watering 739,000 sq ft mixed-use development.
As CBRE senior director Peter Burns, the agent on the deal, points out, the move had little to do with the digital pressures facing the newspaper industry.
“Our Wapping sale was predetermined because of the plant itself moving out to a new facility. The printing facilities had to go to a brand-new site because they couldn’t achieve what they wanted to at Wapping.”
For NI, the fact that London’s luxury residential boom made a sale so profitable was simply a happy coincidence.
Northern & Shell and DMGT’s headline-grabbing moves highlight a similar story, with central London printing presses replaced by state-of-the-art out-of-town facilities.
Desmond’s stable of papers are now printed in Luton, while DMGT is moving from Docklands to Essex.
But the Financial Times‘ appearance on property radars this summer is indicative of a different trend all together. Its home at 1 Southwark Bridge, SE1, never housed a manufacturing function. Instead, says Burns, it wants to move because it needs more modern office space.
Changing needs
DTZ EMEA chief executive John Forrester, who is advising FT parent Pearson, says that like any occupier, newspapers’ needs have changed since the 1980s. “Newspapers are trying to move to big open-plan spaces – if you look at the Guardian HQ at Kings Place, N1, it could be a currency trading floor at an investment bank.”
But while he acknowledges the digital revolution may be dramatically changing papers’ business models, he points out that the basic needs of a journalist have not changed since the introduction of screens to the newsroom.
In fact, the FT is doing better than any of its major UK competitors, being the only national newspaper where digital subscriptions have overtaken print.
It now has 301,471 digital subscribers compared with a printed circulation of 297,225 – which includes 30,000 free copies.
Just under half of the FT‘s digital subscribers are from corporate sales, with companies buying multiple subscriptions that start at £295 per user per year.
In short, a model that cannot be extended to general newspapers.
“The thing that marks out the FT is that general news has been commoditised,” says Hewlett. “If you want to find out what is going on, you don’t need to buy a newspaper because you can be kept up-to-date elsewhere.
“But the FT is different because it supplies information to corporate clients.”
So again, while it may have provided more newspaper-on-newspaper headlines, the FT‘s move is hardly representative, given its circumstances.
But if most of the recent crop of deals has involved the sale of outdated industrial assets, are we on the brink of a new wave, where the digital pressure on publishers’ balance sheets finally forces them into cheaper or smaller office accommodation?
For Knight Frank’s head of central London tenant representation, Bradley Baker, there has so far been limited evidence of the effect of the digital revolution on traditional print-dominated media companies, but he says he “wouldn’t be surprised to see it coming through”.
“TMT occupiers are replacing the more established corporate occupiers, so there is no doubt the younger companies will be taking space that was occupied by them.”
The subsector of the “old media” world where the effect of the digital revolution is perhaps already most visible is the regional press. Some 31 weekly newspapers disappeared in 2011, with a handful more going from daily to weekly.
That trend has accelerated in 2012, with companies such as Johnston Press leading a succession of grim announcements.
In May, it revealed that once- mighty titles such as the Halifax Courier, Northampton Chronicle & Echo and the Peterborough Evening Telegraph would become weeklies. In June, it announced a further five papers would close altogether, including three titles in Scotland.
For Hewlett, these closures are entirely structural, rather than the result of the sluggish economy, albeit accelerated by it: “A lot of the regional newspapers were bought up by a handful of companies in the last 25 years because there was a phase where they were very profitable, based on near-monopolies of classified advertising, and that fuelled a consolidation boom.
“They all took on a significant amount of debt to buy as many titles as they could and are now struggling to cope with that – Johnston being a case in point.”
Other parts of the publishing world are also wrestling with the demands and often changed financial realities of the digital world.
So while property may not have historically been a major cost for most publishers, it is coming into ever-sharper focus.
In the case of Emap, now part of the rebranded TopRight Group, operating margins, which were once 30%, are now in single digits, says former chief executive David Gilbertson, and are likely to have influenced the firm’s recent choice of offices to which the business has relocated.
The publishing part of the company, which retains the Emap name, is set to leave Lazari Investments’ Art Deco Greater London House, NW1, for 22,000 sq ft at Barrowgate Properties’ refurbished Telephone House, EC2.
Gilbertson says that digital start-ups are looking at costs like property very differently.
He says: “In most cases those companies do better because they have never built the cost bases of providing a publication and all the traditional costs that go with it.”
So will the trend for print-focused media companies make property press headlines continue?
“In five years’ time I would be very surprised if there had not been some consolidation,” says Hewlett. “The pressure on costs is only likely to increase.”
