Six years ago, almost to the day, the backer of Chesterford Research Park, Aviva, announced it was speculatively developing. The market was in tatters, take-up had nosedived, dropping 60%, availability was peaking and nearly one-fifth of Cambridge’s lab space was vacant.
Most thought, although few said publicly, that Aviva was at best brave and at worst foolish. Yet, £12m and 40,000 sq ft later, its decision was vindicated, and it went on to sign the only two prelets in Cambridge in the past four years.
Now it is doing it again. The occupier market is not very different today, but with the added drag of a non-existent funding market. In fact, the very mention of the word “speculative” is enough to make most funders wince. Yet, Aviva is backing developer Churchmanor, spending £6m to build the 28,000 sq ft Science Village.
There are other cranes on Cambridge’s skyline, but most have plumped for much-needed – and long-awaited – offices in the core city centre, or student accommodation.
No-one has been brave enough to chance the flitty science park market.
According to Bidwells, availability of labs in Cambridge tripled in the second quarter compared with the end of last year, to 68,000 sq ft, although this is a fraction of the supply peak in 2008.
So to be speculatively funding anything, anywhere, at present, is pretty special. Aviva real estate fund manager Julian Cobourne simply shrugs his shoulders. “We believe in the park,” he says, adding “I just believe it is right.”
The fund has been involved at Chesterford Research Park since 2000, and Cobourne says: “It has always been a medium- to long-term development opportunity. We’ve had great success in those years, and we got to a point last year where we had no stock on the park and, looking forward, we really wanted to see growth and momentum.
“We are not doing huge amounts of spec. We’ve put the numbers into the appraisal and we are comfortable with the assumptions, and if it goes well and it lets up, the IRR meets our investment requirements.”
That is not to say the fund is handing out cash to anyone asking. At present, Cobourne says the fund is “incredibly selective where it invests”. He adds that he does not feel generous about the regional markets, but the fundamentals in Cambridge remain good: “There is hardly any stock left and there is demand so there’s an opportunity.”
Expansion space
The idea is that Science Village will provide expansion space for companies growing out of start-up units. In total, 16 fully fitted-out units will be split over two floors, and up to four suites can be joined together to provide larger space.
Martin Sylvester, director at park owner Churchmanor, says: “We’ve done a lot of evaluation work looking at what occupiers want. For example, the suite’s ratio of write-up space to lab space is flexible and so allows up to a 50:50 split.”
The scheme was officially launched last week. At a glitzy gala dinner, 70 potential occupiers and a smattering of property people descended on the centre’s social hub, Nucleus, for some posh nosh by celebrity chef Anton Edelmann, but the buildings will not reach practical completion until April.
By then, Cobourne says there might be a prelet because potential tenants will be able to actually see the building and, he adds, the market could be better in seven months’ time. The company is taking a two-year view on the market, and he says approaches have come in not just from Cambridge but other parts of the UK such as Oxford.
Chesterford Research Park will chase rents of £32 per sq ft, a shade under Bidwells current estimation of £32.50 for fully fitted lab space. However, the agency predicts pretty flat rental growth through to 2016.
Sylvester remains unperturbed by these predictions, which he says are for much larger space on longer lease terms. Science Village will allow tenants to move swiftly providing “a plug-and-play option”. He says: “We are therefore confident that we have priced the space at the right level.
“We’ve spoken to agents and looked at the future provision and there are no completely similar offerings. A few have some shell and core but they are all of a different nature.”
Of course, that could just be another way of saying nobody else particularly fancies the risk.
Will Mooney, partner at Carter Jonas, believes that it is a brave move to commit to speculative development and particularly costly lab space. He says that, around 18 months ago, there was a good number of small lab-based enquiries specifically for the southern sector of Cambridge. However, of late, that type of requirement has dried up and now it is the larger 5,000 sq ft requirements coming to the fore.
Looking ahead, he believes larger enquiries will dominate. “The type of occupiers seeking 300-1,500 sq ft will not take prelets, so Chesterford, if it sticks to its guns and let the building as designed, rather than floor-by-floor, will have to wait until completion before it gets its first lettings.”
Mooney adds that the market may well swing back again in the intervening period, but at present, he says, “it is looking potentially a risky proposition.
“Spec construction will come round again, but I doubt until at least this time next year.”
Of course, this is Chesterford Research Park doing what it does best – building it and letting others stand by and watch. In another six years, many may be looking on and wishing they too had had the guts to get building.
