BT is preparing to embark on one of the largest office shake-ups the UK property industry has ever seen.
The telecoms giant is planning to shrink its office portfolio by 90% as part of its “Better Workplace programme”.
JLL has been hired to advise on the consolidation, tasked with refurbishing BT’s existing offices and acquiring new ones to whittle down the company’s portfolio from more than 300 offices to just 30 hubs.
So far, it has only confirmed eight of the 30 cities – Belfast, Birmingham, Bristol, Cardiff, Edinburgh, Ipswich (Adastral Park), London and Manchester. These are areas where BT is planning to start refurbishing or acquiring buildings as soon as possible.
BT said the aim of its office cull was to “improve and consolidate” its operations. The company is undergoing a major cost-cutting programme and plans to reduce costs by £1.5bn a year by 2020-21 following a disappointing 18 months of trading.
In 2017, its profit before tax fell to £2.4m from roughly £3.5m the year before and has stayed relatively stagnant ever since (its profit stood at £2.6m in 2018 and £2.7m in 2019).
As well as a property cull, the group is aiming to cut 13,000 jobs over three years to shrink its staff down to around 75,000. Chief executive Gavin Patterson is also stepping down.
BT’s consolidation programme will take place over three to five years. More key locations are yet to be revealed, but EG understands the company has a requirement for roughly 100,000 sq ft of office space in Sheffield and that it is eyeing space in key developments such as Legal & General’s £150m West Bar and Queensbury’s Heart of the City. BT declined to comment.
A rocky start
As part of its instruction, JLL will repurpose existing offices and acquire new space in all areas outside London. BT’s London portfolio is being handled by Cushman & Wakefield, which was tasked with selling the company’s London headquarters.
But as EG revealed last week, Great Portland Estates, which was under offer to buy the 300,000 sq ft soft block at 81 Newgate, EC1, for around £210m, walked away from the deal.
GPE went under offer on the property earlier this year, but it is understood due diligence issues came up in regards to the refurbishment of the property.
Underbidders from the previous sale process have been asked to bid again.
Meanwhile, BT has placed all of the 328,064 sq ft office space available at Aldgate Developments’ One Braham in Whitechapel, E1, under offer for a new London HQ.
BT may also face regional challenges in its hunt for new space, said Savills’ head of national office agency Jon Gardiner.
Edinburgh will “possibly be the tightest market”, with only a handful of suitable schemes that will be available. Cardiff follows closely, where there is also a squeeze on office space.
Bristol, which has more options on the table, is still “not awash with space”, while it might find itself in competition with other big names such as WeWork in Manchester’s buoyant market.
A wider trend?
BT’s move to consolidate its office portfolio into a series of regional hubs is part of a growing trend among major occupiers.
In 2015, the Government Property Agency appointed JLL to advise on its relocation of thousands of civil servants into shared departmental offices. Since the announcement, 13 hubs have been created.
The trend has created more work for agents and law firms.
Clifford Chance real estate partner Mark Payne said the firm is having “a number of conversations with clients and professional advisors looking at their premises needs”.
He added: “The BT news is a dramatic example of a trend among forward-thinking employers who have recognised the critical part that buildings can play in the recruitment, motivation and retention of staff.”
Meanwhile, Hugo Denée, managing director of Squarestone Growth, a high-yielding regional fund, said he is seeing occupiers priced out of London flock to cities like Manchester, Leeds, Birmingham and Glasgow.
“Companies want to be in the city centre but can release capital by releasing harder-to-manage, geographically spread offices and investing in fewer but better managed offices in key hubs.”
To send feedback, e-mail lucy.alderson@egi.co.uk or tweet @LucyAJourno or @estatesgazette
