Whenever a speculative office development has started on site in recent months, agents describe it as “a pretty brave call” a euphemism for “they must be mad”. Speculative office development has almost completely halted in many parts of the country. In the Thames Valley, for example, there is only one office building under construction. Many of the cranes in operation signify developments that came too late for the last boom and are arriving in a market very different from the one their initiators envisaged.
However, there is a small and select band of office developers beginning speculative development that can argue strongly that their sanity is still intact. Each of these believes they have found a niche that can buck the market trend (see case studies). Often working with difficult sites in city centres, the viability of their schemes is boosted by tight supply, near-perfect locations and outstanding demographics.
“Speculative development is still continuing in areas with tight planning controls and in centres that didn’t get into overproduction when the market was strong,” says Simon Underhill, a partner at Strutt & Parker.
“Offices of the future will have to be more responsive to the urban context,” argues Alex Lifschutz, a director at architect Lifschutz Davidson. “This will favour buildings with smaller floorplates and lower floor-to-ceiling heights buildings that can be inserted more easily into the increasingly challenging sites that become available.”
The trend towards tight city-centre locations has been driven by the decline of the TMT sector, which underpinned much of the recent growth of business. “Business parks will almost become a complete no-no in central government planning, like out-of-town retail,” predicts Charles Whitworth, a director at DTZ. “Most of the development opportunities around now are what are called ‘difficult’ sites.”
Even Mike Rolls, director of property development for Prudential Property Investment Managers, owners of Green Park near Reading, believes the days of large-scale business park development could be over.
“We feel that there won’t be many new out-of-town business parks, although there will be an opportunity to expand existing parks,” he says. “There has been a shift back to the town centres. Some of the shopping centres are now regarded as town centres, and business parks have to go in that direction to compete.”
However, few city-centre sites are able to accommodate buildings with large floorplates, leading some developers to build business park-type space in suburban locations where there is more land available, but which are still well-served by public transport.
In an uncertain market, developers are demanding greater flexibility and speed of construction in the race to secure tenants, says Mark Kowal, a partner at architect Sheppard Robson. For instance, he says: “Designers are encouraged to use standard rather than bespoke components. There is much more prefabrication of anything that can be put together off-site so you can deliver buildings much quicker.”
Trilogy, Glasgow
Highbridge Properties
There is little new speculative development activity in the business market, but thanks to innovative funding backed by enterprise zone tax breaks and a prelet, Highbridge Properties’ Trilogy AT Eurocentral Business Park near Glasgow is bucking the trend. With a prelet of 50,000 sq ft to cash machine company NCR for a call centre, Highbridge was able to arrange funding through a syndicate of investors who will receive tax breaks from the now-expired enterprise zone.
Together with NCR’s facility, Highbridge is speculatively developing two further buildings, totalling 77,000 sq ft, for completion in spring 2004. Letting agent Cushman & Wakefield Healey & Baker is quoting rents of £14.75 per sq ft.
Despite the increase in available space on Scotland’s business parks to 17.8% in the first half of this year, according to GVA Grimley figures, Highbridge director Marc Smith believes the area has fundamental strengths. “Demographics are one of the main things that drive us to choose a particular location,” he argues.
Smith says the area has the second highest population in higher education outside London, with a high proportion of women ideal for the kind of occupiers that Trilogy is trying to attract.
“Throughout the country there is a strong resurgence of outsourcing companies,” he claims. “The first question they will askis ‘where can I find my staff at an economic level?’.”
Where wages are not too high and there is not much competition is the answer.
The Royals Business Park, London
Development Securities
This month will see the topping out ceremony of one of the largest office developments to be started in London over the past year. The 236,000 sq ft first phase of The Royals Business Park on the Royal Docks in east London, illustrates the move toward edge-of-centre business parks.
Development Securities has a development agreement with the London Development Authority to build up to 1.7m sq ft in total on the 50-acre site. Project director Roger Squire believes the scheme has a unique appeal. “It’s much the closest business park to the City,” he claims. “It’ll be aimed at companies that enjoy the business park environment but need to be close to their clients’ offices in the City.”
The first phase will consist of two linked buildings with an enclosed winter garden between them, lined by cafés and shops to form an internal street. Letting agents Knight Frank and ATIS REAL Weatheralls will attempt to let the building in suites of 20,000 sq ft and above at a rent of around £25 per sq ft.
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134 Edmund Street, Birmingham Chase Commercial |
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“Our scheme is driven purely by supply and demand. It’ll be the only building completed in 2004 in the centre of Birmingham,” states Chase Commercial managing director Tim Haslam. The development is a prime example of a scheme driven by market forces. Birmingham city centre’s office supply has always been slim, largely thanks to the nervousness of developers and a lack of sites. “There is only about 250,000 sq ft available and some of that is under offer,” says Charles Toogood of GVA Grimley, which is joint letting agent with CB Richard Ellis. “And there is a big hole in the supply pipeline in the next two years.” The 82,900 sq ft building will retain the façade and the front rooms of two listed Victorian buildings on Edmund Street and add a 10-floor tower, with an atrium between the two elements. Toogood says he anticipates the building, which will be completed in autumn next year, being taken up in two or three deals at a rent below Birmingham’s prime headline figure, probably somewhere in the mid-£20s. |
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Waverley Gate, Edinburgh Castlemore |
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In Edinburgh, Castlemore is attempting to take advantage of limited city-centre supply and a strong occupier base of blue-chip finance companies with the 210,000 sq ft speculative Waverley Gate scheme. “The city centre has a shortage of good-quality offices because of a very restrictive planning regime,” says development director Nick Mason. The building, which is due for completion in December 2004, is the only speculative space in the city centre that will come on to the market at that time. A situation that contrasts starkly with the out-of-town market, which has several vacant buildings. Mason says the attraction of the Waverley scheme is its good transport links. The £100m development, which is being constructed inside the giant Victorian Post Office building, is next to North Bridge and close to Waverley station. An innovative façade retention will see an entirely new building constructed within the shell, allowing large, regular floorplates of up to 37,000 sq ft. Unusually for a speculative building, Caslemore will fit the building with active chilled beam air conditioning, very expensive to put in, but cheaper to run. Letting agents Roxburgh & Co and Montagu Evans will be seeking to establish a new record office rent for the city. “It all comes down to the quality of the space that you provide, which is why people went into business parks in the first place,” argues Mason. |
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City Square, Liverpool Scarborough Development Group |
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Low costs, favourable demographics, undersupply and gap funding have combined to make the speculative development of 144,000 sq ft at City Square in Liverpool a realistic proposition for Scarborough Development Group (formerly Teesland) and joint venture partner Shepherd Construction. Work started this month on the city-centre scheme, costing £33m to build with around £5m of European Regional Development Funding and North West Development Authority gap funding. “In a tight economic environment it has the cost advantage and that perhaps tips the scales. When you’re going everywhere else and seeing doom and gloom, Liverpool is very upbeat,” enthuses Scarborough director Mark Finlay “We see Liverpool being like Leeds a number of years ago.” The building will provide 25,000 sq ft floorplates over six floors next to Moorfields station. A possible prelet of around 100,000 sq ft to the Department for Constitutional Affairs has been rumoured, but Scarborough will build speculatively in any event. While around 450,000 sq ft of new office space is due to come on to the central Liverpool market next year, 140,000 sq ft is already prelet. Letting agents CB Richard Ellis and Mason suspect there is considerable latent demand. |
