For a cool and self-consciously contemporary city, Brighton’s office market must feel like an embarrassing retro fail.
The Brighton office scene seems to be trapped in a time-warp, and not in a good way. Stiles Harold Williams’ research estimates that 85% of the city’s 4m sq ft of offices was built before 1987 – and the last big office scheme was 25 years ago.
Trafalgar Place, the 250,000 sq ft office complex next to the station, was completed in 1990. And since then – well, it has been quiet. In the meantime, Brighton has seen two booms and three busts, and a local council whose political colour changes like the traffic lights on the promenade (and is currently set to Green).
Meanwhile, residential land values have been whipped up by the sea breeze, while office values have got stuck in the sand, so it is no surprise that the existing stock of older offices has been devoured by conversion to residential use. SHW reckons about 750,000 sq ft has been removed from the market in this way in the past 10 years (see below).
The result is an office market whose tide was so far out that developers could not be bothered to roll up their trousers. Nobody had taken the plunge since 2007.
But how quickly the mood changes. This summer, there is a pile of developers’ clothes on the beach, with Development Securities, McAleer & Rush, and First Base splashing happily in the surf. Brighton is finally back in the office property business.
Both McAleer & Rush and DevSec have been waiting patiently since 2008, when they first mooted their Brighton plans, and it would be tempting to blame the recession for the glacial progress. Tempting, but not quite right, because Brighton’s peculiarly laid-back office market is at least partly to blame.
A quick glance at the numbers reveals the problem – and the opportunity. Today developers believe there is just 46,000 sq ft of grade-A office space available in the city, and a further 300,000 sq ft of other space. Most of the vacant space is unappealing, with 85% more than 30 years old. Annual take-up was about 195,000 sq ft in 2014 – a good year – and even if it hovers around the medium-term trend of 177,000 sq ft per year, the supply of office space is clearly not adequate for the demand.
Puzzlingly, this is quite normal for Brighton, where laid-back occupiers stay put and make do with existing floorspace.
Angus Currie, head of JLL’s South East tenant representation team, explains: “Occupiers don’t do big projects here. They just roll the lease on and make do.”
Emma Hards, associate at Stiles Harold Williams, pinpoints the same attitude among Brighton’s growing tech sector. “A lot of cheaper, lower-quality office stock has gone for residential conversion, which has helped push office rents,” she says. “And occupiers are stuck because they have to stay in Brighton – their staff won’t move – so they simply have to pay the higher rents in older accommodation.”
Rob Sloper, director at Cathedral Group, the DevSec subsidiary handling the £100m Circus Street scheme Pictured), sums it up neatly: “The office market dried up.”
Developers behind the new speculative schemes have a simple task: to get the parched market back into health.
Angus Monteith, director at McAleer & Rush, is confident the market wants what he is offering – the 32,000 sq ft Cityview scheme on a site in the New England quarter next to Brighton station.
So confident is he that guide rents ahead of the early 2016 completion of building works have already nudged up from £26 to £28 per sq ft, and could reach £30 per sq ft by Christmas.
“We are expecting to appeal to finance, professionals, back-office and mature tech companies, but probably not the younger start-ups,” he says. Monteith is not relying entirely on the laid-back locals. “We expect to see big occupiers from outside the area, too,” he adds.
Cathedral Group’s Sloper is also confident enough to say that speculative development of the 30,000 sq ft office element at Circus Street is more probable than possible. The firm is now testing the funding market, and results are expected imminently.
Sloper hopes to catch some of the fast-growing tech businesses that account for about half of Brighton’s annual take-up. “Tech occupiers want to move quickly, creating a market that lends itself to speculative development,” he says.
“We’re developing near Kemptown, so we’re pitching it to the creative community. The digital tech sector in the city doubled between 2010 and 2013, and we want to attract them to our scheme. But we’re happy to straddle the professional and tech markets.”
Straddling the two markets is not easy. Tech occupiers prefer older, quirkier floorspace – and typically have less money to spend. The loss of office buildings to residential conversion has hurt them particularly, says JLL’s Currie.
“Local tech occupiers are small and fleet-of-foot in the property market, typically looking for 5,000-10,000 sq ft, in quirkier suites, and there’s been a real shortage for years,” he says. “Occupiers have learned to pay what they need to.”
Demand from this sector is strong. SHW’s Hard adds: “If we have a vacant suite, we can let it three times over.”
Professional and corporate occupiers are prepared to sit on their hands and wait for new development, and pent-up demand is considerable. “If I had 100,000 sq ft of new grade-A space, I could let it very quickly,” says Currie.
It is unclear whether more developers will follow DevSec and McAleer & Rush into speculative development. The council says 1.2m sq ft of new space is required in the next 15 years – and if this target is to be met, developers need to get back into the water pretty quickly.
Hannington Estate
The Brighton retail and leisure scene could be set for new development after Amsterdam-based Redevco’s £55m purchase of the 1.3-acre Hannington Estate in central Brighton.
Mark Bennett, investment partner at KLM and an adviser on the sale, says: “It’s a big play for the town centre because new development there breaks through from North Street to the Lanes, promising a long-term transformation. Retail and leisure will be integrated more effectively.”
Retail rents are likely to rise in the immediate neighbourhood, up from £80-£120 zone A to something closer to the £200-£235 per sq ft zone A achieved at the top of East Street.
First base
Could One Preston Road be the next speculative office development site? The new owner of the 1.5-acre site – Elliot Lipton’s First Base, which paid over £10m – is considering its options.
There is already talk of a 200-apartment scheme designed by Sir Terence Conran, but an early attempt by Investec and Urban Splash to win planning permission for residential on this former office site was turned down by Brighton’s planning committee.
“We are in very early stages with our Brighton scheme, so we haven’t yet developed our strategy,” a First Base spokesperson says, advising EG to call back “probably same time next year”.
