Too much: Is £20 per sq ft a realistic expectation for the Norwich office market? Opinions are divided, even among optimists
Two years of promises, two schemes waiting in the wings – is an office rent of £20 per sq ft too much for the Norwich office market?
Norwich property players have been willing, and wishing for rents to move up to the magic £20 milestone, driven by new stock in the form of Targetfollow’s eagerly anticipated £50m Duke’s Wharf, and St James Court scheme at Whitefriars – a redevelopment of the old Jarrold printworks which will deliver 250,000 sq ft in phase one.
But the barrier has stubbornly refused to be broken. Instead, rents have increased at the frustratingly slow pace of 50p per sq ft pa to reach £15 per sq ft at the end of last year.
Massive jump
So is £20 per sq ft really achievable in Norwich? The figure, if realised, would nudge Norwich ahead of Liverpool’s £19.50 per sq ft, catapult it over Nottingham’s £17.50 per sq ft, and put it on a par with accommodation in Cardiff.
The signs from the statisticians are not good. IPD figures show rental growth flattening out last year, coming off a peak of 12% growth in 2003. The good news is that agents think this is likely to be the lowest point of the trough, with strong growth forecast for the year ahead.
Yet this falls short of predicting £20 per sq ft – a figure that would represent a mammoth 25% hike in current levels. Bidwells says that rents will top out at only £17.50 per sq ft by the turn of the decade. Evena more optimistic Savills predicts that, by 2010, rents may have achieved only £19 per sq ft.
Will Jones, partner at Bidwells, believes that occupiers simply will not pay £19-£20 per sq ft. “Rents tend not to shoot up or down,” he says. “People are just about OK for £17.50 per sq ft, but it is a massive jump from £16.50 per sq ft to £20 per sq ft.”
None is a more vocal proponent of Norwich than Targetfollow’s development director, Julian Wells, the brains behind the Duke’s Wharf scheme. The Norwich-based developer is planning a 250,800 sq ft mixed-use scheme on the Eastern Electricity site, including 140,000 sq ft of offices. It submitted a planning application last October, with a view to moving occupiers in within two years. Wells says that, while there has been a lot of development out of town, city-centre options for occupiers remain thin on the ground.
“If they had a real alternative, they would have come here,” he explains. “Norwich is ready for £20 per sq ft.”
He adds: “We are going to take offices in the development, and we have one or two interested parties who will sign up quickly.”
Some may dismiss this as overoptimistic marketing, but the Norwich city-centre market is largely untested and comparables are hard to find. Maggie McCluskey at Savills says: “£16.50 has been achieved in city-centre space, but this cannot be translated directly into rental growth prospects as there have been nocity-centre grade A deals to compare it with for at least 10 years.”
Prime city-centre space is hard to come by, with only 55,000 sq ft of grade A accommodation available in January against a take-up of 174,000 sq ft last year. Pent-up demand could be enough to push occupiers to pay prices way outside their comfort zone.
For example, Whitefriars is the only development in the city centre and is rumoured to have reached that top £16.50 per sq ft level. Details remain confidential, but two deals were done at the Jarrold site scheme last year, with Defra signing up for a 30,000 sq ft prelet and solicitor Birketts taking 25,000 sq ft.
National occupiers
One believer in the possibility of £20 per sq ft is Caroline Morton, head of commercial agency at Savills, agent on Duke’s Wharf. She says that the level of enquiries in Norwich has been good, with serious interestfrom national occupiers looking for 5,000-10,000 sq ft.
“These are serious enquiries that will convert because they are companies looking to expand into the region, not those with existing accommodation that might have a dilemma over whether to expand or not,” she says.
There are also requirements from local occupiers. Barclays, currently in St Cuthberts House on Upper King Street, and accountant Grant Thornton, which has a lease expiry on Holland Court to the north of the city, are both believed to be looking for 10,000-12,000 sq ft.
Will this be enough to tip Norwich over the magic £20 per sq ft? If pent-up demand means competition is hot, this could play straight into the hands of the developers behind Duke’s Wharf and St James Court.
However, for both, the risks of building into a market that has seen little new space for years are huge.
Landowners remain cagey over residential expansion
Norwich needs 33,000 homes by 2021, with half those to be delivered in the next eight years, says the Greater Norwich Development Partnership, which brings together local councils and the East of England Development Agency. Unfortunately, landowners seem less keen to deliver.
A recent consultation, looking to whittle 11 potential sites in and around Norwich down to three or four, failed to ignite owners’ interest. By February, the cut-off date for submitting comments, “not an awful lot” had been presented, says Paul Clarke, head of residential development at Bidwells, which is promoting an area to the north of the airport.
“Not many landowners have come forward,” Clarke adds. “They are used to higher land prices, and the end-values being proposed are less than they are used to. With things like section 106 and the green agenda, councils have a huge shopping list these days, and developers can’t always deliver this.”
GNDP is still expected to release a shortlist of sites in July, but the path after this is unclear. It has been encouraging landowners to offer sites that can accommodate 8,000 units, says Clarke, the magic number at which developers have to provide a secondary school.
“Everyone is sitting on their hands and watching each other, but things will move towards the end of the year,” he says. “I suspect the council will have to accept whatevergrowth it can get, given the wider economic troubles.”
Smaller scale sites are moving ahead in the city centre. In January, Crest Nicholson, advised by Savills, bought the former Jarrold printworks site from Norwich council and local department store owner and publisher Jarrold, with a view to building 200 properties there.
The site, in the Whitefriars area,is part of a substantial redevelopment of the former works, and will also include offices and a hotel.
Crest Nicholson hopes to submit a planning application by April, with a view to starting work by the end of the year.
Chapelfields centre fails to excite
Gentleman’s Walk remains the prime pitch in Norwich despite the arrival of Capital Shopping Centres’ Chapelfields centre in 2005.
Retailer requirements have levelled off at 460,000 sq ft, which Bidwells says is the lowest level it has seen since monitoring began.
Zone As remain at £215 per sq ft.
The market has yet to recover from the opening of Chapelfields, which some believe has failed to perform to expected standards.
Retail consultancy Experian believes CSC should look at its strategy, and consider reconfiguring the development.
Jonathan de Mello, director of property consultancy at Experian, says: “People don’t talk about going to Chapelfields, they talk about going to Norwich, so CSC needs to create a bit more of a brand.”
But increasing spend will be far from easy, says de Mello. “Norwich is such a dominant centre,” he argues. “It is not like Liverpool, which has fallen down the rankings, and Norwich already has a high catchment.”
Out-of-town market at a glance
The final phase at St Andrews Business Park, the 15,500 sq ft St Andrews Court, has been let to Circle Anglia
The Norfolk Primary Care Trust acquired a new lease for 26,400 sq ft on Lakeside 400 at Broadlands Park
Construction is set to begin at Broadlands Business Park, and Lothbury Property Trust expects the 30,000 sq ft Bankside 300 will be completed by November
