As the economy recovers, Plymouth is battling to plug the viability gap and deliver new commercial space. Claire Robson reports
While leisure schemes and waterfront apartments are changing the face of what is now branded “Britain’s ocean city”, the pressure is on to boost employment in a market that needs a little more buoyancy.
The council admits that persuading developers to deliver quality office and industrial property in Plymouth is a challenge. “Where the M5 ends, construction costs exceed end-value and we are having to be very proactive in addressing market failure,” says James Watt, head of commercial estate at Plymouth city council.
The local authority is not short of ambition, but it will take significant public sector investment for that ambition to be realised. For instance, plans are afoot to transform part of the Devonport Naval Base into an 18.6-acre Marine Industries Production Campus. As the flagship project of the Plymouth and South West Peninsula City Deal, South Yard will incorporate 350,000 sq ft of marine workspace, with the potential to create 1,100 jobs.
However, according to the council, with a development cost of £65m over 10 years, against a value of £45m, there is a sizeable gap to fill. Both government and local partners have had to step in to make a start viable and it is hoped £100m of private sector investment will be leveraged once South Yard is complete.
Subject to planning, the site will be transferred from the MoD in March 2015. Alder King produced a feasibility study and partner Ralph Collison is encouraged by the level of enquiries so far.
“We have had interest from a number of marine-related businesses, including manufacturers of large structures, boat builders and subcontractors,” he says.
The council may fund its own direct development at South Yard to instil investor confidence. It is a strategy it hopes will also boost Plymouth’s most important regeneration project, Langage Energy Park. The site has the potential to provide 1.5m sq ft of employment space, but the scheme was stopped in its tracks by the recession and the demise of the South West Regional Development Agency.
However, a demand study published by JLL last year identified a significant shortage of commercial space in Plymouth and encouraged the council to take a closer look at its property strategy. With existing office and industrial space at 95% occupancy, it is spending £2.5m developing 30,000 sq ft of industrial units at Langage. It is due to complete next summer, and it is hoped the private sector will follow suit.
Mike Oldrieve of Vickery Holman says there are finally signs of increasing demand – at least for industrial space: “I’m hopeful that within the next 12 months an occupier will sign up for design and build.”
The supply/demand imbalance is pushing up industrial rents. Ifan Rhys-Jones of Listers Property Consultants points to a deal on a 20,000 sq ft building at Langage that was relet at £5.25 per sq ft – a significantly higher rent than that achieved pre-recession.
Developers that have been proactive have reaped the rewards. Local developer London and Devonshire Trust has just exchanged contracts on the final five acres of Plymouth Enterprise Park. It bought the 22-acre site in August 2012 and was granted permission to build 255,000 sq ft of industrial and business space.
In two years it has attracted six occupiers, including Western Storage Solutions and REACT Energy. “Traditional serviced land in good locations always finds a market if priced correctly,” says Harcourt Kerr’s Philip Kerr. “Regeneration projects don’t have to be costly: there’s plenty of demand for good basic employment space.”
Office development: Mind the gap
Plymouth may be poised to attract new industrial development, but its office market remains in the doldrums.
The city has never had a vibrant office sector, and even as the economy recovers speculative development is unlikely.
“Demand remains static, and without public sector support speculative development isn’t viable,” says JLL’s Tim Western. “It has never attracted the same level of office demand seen in Exeter.”
Headline rents reached £16.50 per sq ft following a 5,500 sq ft letting to accountant Bishop Fleming at Sutton Harbour’s Salt Quay House. Yet agents such as Lister’s Ifan Rhys-Jones argue net effective rents are more in the region of £12.50 and that they need to rise by around £4 per sq ft for speculative development to stack up.
The council is doing its best to assist. Millfields Trust has had funding to develop a 35-unit enterprise centre on Union Street, while money from the council’s investment fund is helping deliver space for the creative industries at Royal William Yard’s Ocean Studios.
Yet for new office space to be delivered on any significant scale, Plymouth’s major regeneration projects need to step up to the mark.
Sutton Harbour Holdings has plans to create a central business district and this year has let 10,000 sq ft to Rame Energy and Bishop Fleming. Its office buildings are now full and it is working on a masterplan to complete the mixed-use development of the harbour.
“There is potential to accommodate 100,000 sq ft of new-build offices, but we would have to be prelet at around £20 per sq ft,” says Sutton Harbour asset manager Paul James. “We are not there yet, but I would like to think that within the next 18 months we might have a prelet agreed.”
It will also take a hike in rents before any new office stock is delivered at Millbay. English Cities Fund has put in an updated planning application to complete the dock’s regeneration into a vibrant residential and cultural quarter.
The office element remains broadly the same, with potential to deliver 140,000 sq ft of space.
ECF would also require a blue-chip prelet at close to £20 per sq ft before moving ahead. “Plymouth’s office market has really struggled,” says ECF project director Duncan Cumberland. “But hopefully, as the city gets better at selling itself, it will be seen as a great place for companies that want to relocate.”
