Grit and determination. You would expect both to be in the mix at a company such as Harworth Group, which prides itself on regenerating “some of the most complex brownfield sites in the UK”. But when Lynda Shillaw uses that phrase, she does so to underline more than Harworth’s approach to its day-to-day business.
Shillaw joined the company as chief executive in late 2020, as the country lurched in and out of Covid-19 lockdowns. The “sheer grit and determination” she says the team showed in the months since has been a defining characteristic of how Harworth navigates one of the most uncertain times real estate has faced.
“The teams went through hell in 2020 and 2021,” Shillaw says. “On top of whatever they were doing as their day job, they were home-schooling their kids, they were looking after or not being able to see family, they were dealing with life. That resilience and tenacity, the ability for people to come together and support each other, was really important. As a CEO, people are vital. You need to make sure that you’re looking after their wellbeing in every sense of the word.”
This is a drum Shillaw has banged before. Joining an EG roundtable of new chief executives early in 2021, she said a failure to address workers’ wellbeing meant “potentially failing the organisation”. Lockdowns might now seem like a memory, but Harworth’s team faces tough times and new challenges ahead, with costs spiralling and markets see-sawing. Grit and determination, resilience and tenacity – the coming months will provide plenty of opportunity for Shillaw and colleagues to show them all over again.
Filling the hopper
Last year, Harworth posted revenue of £109.9m, up by 57% on 2020 and comfortably above 2019’s £85.5m. Profit of £48.7m leapt from £10.6m a year before, also passing the 2019 total. The company’s total return of 24.6% was its highest ever. “Not too shabby,” as Shillaw puts it.
Like many a new chief executive, Shillaw launched a strategic review of the company in the months after joining: “A proper look at the business,” she says. “Each of the sites, the markets they sat in, what they were capable of delivering, the investment required and how quickly we could realise it.”
As a CEO, people are vital. You need to make sure that you’re looking after their wellbeing in every sense of the word
The subsequent growth strategy aims to double Harworth’s net disposal value from £516m in 2020 to more than £1bn over five to seven years. Shillaw is pulling on four levers to do that.
First, more industrial and logistics direct development. Shillaw reckons the company can lift its annual direct development from an average of 200,000 sq ft to 800,000 sq ft. At the end of last year the company had boosted the figure to almost 500,000 sq ft, delivering a 50,800 sq ft unit at Logistics North in Bolton and starting on site with 432,000 sq ft across Bardon Hill in Leicestershire and the Advanced Manufacturing Park in South Yorkshire. This year it is lining up a further 191,000 sq ft at Gateway 36 in Barnsley, South Yorkshire, and the AMP, as well as site preparation works for 2m sq ft at Wingates in Bolton and Chatterley Valley in Staffordshire.
Second, speeding up the pace of its residential work. The company is on its way to meeting a target of selling 2,000 plots a year, and build-to-rent is now on the radar too, with former Quintain project manager James Crow hired as head of mixed tenure to oversee a 1,200-home portfolio launch.
“To be able to deliver a rental product alongside the build-to-sell was important because it means we can work through sites faster and we can accelerate the placemaking and the value growth from those sites and the returns,” Shillaw says.
Third, keep replenishing the landbank – or, as Shillaw puts it, “keep filling the hopper”. Last year the company bought the Rothwell site in Northamptonshire, which could deliver up to 1.5m sq ft of industrial and logistics space, and Staveley in Derbyshire, earmarked for 600 homes.
“We sized the hopper at 12 to 15 years on average at any point in time in the landbank,” she says. “We used to look at it based on square feet or the number of plots, but it’s not the right way. It’s ‘how many years of supply have I got?’”
Finally, Shillaw wants Harworth to manage its investment portfolio more actively. Until now, the portfolio has been used to cover overheads and to provide lenders with security. “It’s worked really hard for us, but through the lens of the strategy it will continue to do those things but it becomes something quite different,” Shillaw says. She expects older assets to be sold and replaced with what she calls the “shiny stuff” – modern, grade-A properties that are more sustainable and have top tenant covenants.
“It makes that portfolio more resilient in a more volatile market because the quality of the stock is skewed to prime,” she adds. “It also makes it more fundable – banks are really now focused on the ESG credentials of the assets.”
Shillaw describes this all as a “simple” strategy, and one that she says investors are on board with. By the end of 2021, Harworth’s NDV stood at £637.5m.
“We had a really strong market,” Shillaw says with some modesty. “We are developing in the sweet spot, whether it’s residential or industrial and logistics. Both of those markets have structural undersupply and both have seen really good growth. But the market doesn’t pick the sites that you assemble, the market doesn’t take it through planning. From a Harworth perspective, a lot of the value that we create is doing all of those things as a management team and then the market has given us a turbocharge to what we were delivering last year.”
Agile thinking
Now, markets are shifting again. “The world got tougher” as soon as Russia invaded Ukraine, Shillaw says, and fresh challenges are ahead. Shillaw – who joined Harworth after a stint as property director at Town Centre Securities and had previously worked at Manchester Airports Group and Lloyds Banking Group – is taking them in her stride as head of a “long-term, through-the-cycle business”.
“We always know if you think about a 10-year cycle, at some point you’re going to get some cost inflation,” she says. “Interest rate rises have been pretty uncommon until recently, but you know you are going to get some changes to your baseline as you go through that cycle.”
And Harworth has options, she adds. In its industrial and logistics arm, the company can choose how to manage risk – whether to build or not, whether to sell land or not, whether to enter joint ventures or not. And in the residential market, she adds, the market has slowed but not stalled – although she has concerns over what the rising cost of living will do for demand.
Keeping options open will be crucial during the coming months. “You have got to be quite agile,” Shillaw says. “You are managing some of this stuff in the moment, even with things that have a longer cycle to deliver.”
As the company works through this market, Shillaw wants Harworth to be seen as exactly the kind of real estate developer that will take a leading role in the government’s levelling-up agenda. The company’s work in Waverley and the AMP is a prime example of the good real estate can do, she says; “an exemplar site in terms of how you regenerate a brownfield site”. But these are long-term schemes that call for commitment and patient capital.
We are developing in the sweet spot, whether it’s residential or industrial and logistics. Both of those markets have structural undersupply and both have seen really good growth
Shillaw was a fan of the long-awaited levelling-up white paper – at least in part. “What I liked was the scope,” she says. “The missions frame a big and ambitious scope. I liked the fact it went beyond one parliament in terms of its aspiration. And I liked the fact that to facilitate it, you have got to make real changes to the way that Whitehall works… the philosophy was really sensible.
“What I didn’t like about it was there is no real idea as to how it’s going to be funded… Where it also fell down for me was planning. We kicked the [planning reform] Bill into the long grass.”
That suggests government still hasn’t grasped what the real estate industry can offer here. Does Shillaw think ministers understand the role the industry can play in levelling up?
“I don’t think it is understood by government,” she says. “I think government is quite London-centric in terms of businesses that it talks to. We have the hard yards and scars under our belt in terms of what it really means to regenerate in the regions. Government spending more time in the regions talking to regional businesses and talking to regeneration businesses is really important.”
But the onus is also on the industry to drive that conversation and show a bit of grit.
“It’s incumbent on business leaders in the regions to try to engage with the government and local authorities,” says Shillaw. “We’ve got to make our voice heard. And it’s louder if there’s a group, not just one.”
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