In these tough economic times many companies are keen to offload space they are not using. However, few are going to the lengths of telecoms giant BT, which has set up a dedicated website to market its surplus space. Then again, few companies have, like BT, more than 400,000 sq ft to dispose of. In its case, the majority of space is in Hertfordshire and Essex.
The largest amount available is 132,000 sq ft at Westside, Hemel Hempstead. Some 85,000 sq ft is on the market at Hercules Way in Leavesden, Watford, and 65,500 sq ft is available at 1 London Road, Brentwood. But with so many other occupiers in the same boat, it is not clear who will come forward to take BT’s space.
Philip Papenfus, head of Colliers International’s South East offices team, says: “While we continue to have uncertainty in the wider economic environment, occupiers will find it difficult to make larger acquisitions. So I expect most activity this year to be lease event-led.”
Office agents across Bedfordshire, Hertfordshire and Essex have a common refrain: there are very few active requirements, and for those in the market to move, there is very little brand new space left to choose from. In Luton, the largest single grade-A speculative office available is less than 10,000 sq ft (Building 2030 at Butterfield Park).
Savills director Simon Glenn says: “The fact that there is very little grade-A supply is now a real issue. Most tenants don’t want grade B, they want high-quality refurbished space.”
While there are isolated incidences of developers upgrading space – for example, Greenhills is giving 40,000 sq ft at Croxley Business Park a makeover and BT is considering doing the same to a 24,000 sq ft floor at Brentwood’s 1 London Road – the high costs involved (see St Albans box) will deter many landlords from taking this route to create supply.
Paul Jessop, director at Lambert Smith Hampton’s Luton office, says: “High-quality refurbs are probably unlikely as typical rents are £10 per sq ft now, so it would be difficult to make the numbers stack up.”
If refurbishments are unlikely, developments are out of the question for the foreseeable future. James Wright of Fenn Wright in Chelmsford speaks for many across Bedfordshire, Hertfordshire and Essex when he says: “There’s no development happening at all.”
In some places, such as St Albans, there is little developable land. In others, like Luton, major schemes such as Laing O’Rourke’s Napier Park, which has planning consent for around 485,000 sq ft of offices, have stalled as a result of the recession.
An agent who prefers not to be named says: “Whereas before that much space would have made you a millionaire, now it is a millstone around your neck, as values for offices are so poor. There is a need to review large schemes with planning permission, as many are now outdated.”
Last month, Augur Group announced that it had taken over as development manager for both Napier Park and the nearby Stirling Place development and was planning to meet with Luton council to discuss a reconfigured masterplan.
The question still remains, where will occupiers who do need space go? Some, like Iveco, will simply stay put. The truckmaker renewed its lease on 74,000 sq ft in Watford’s Station Road last summer. Others, like IFDS, will absorb others’ surplus. The expanding Essex-based financial services company has just agreed to take 17,000 sq ft at BT’s 1 London Road building in Brentwood.
Jones Lang LaSalle partner Stuart Austin, joint agent on the BT space with GVA, concludes: “Although occupiers may be reluctant to move, having the correct real estate is vitally important for them.”
Northern Home Counties losing out to Thames Valley
With precious little new supply of high-quality space, key occupational activity is likely to focus on locations that still offer a choice of existing grade-A accommodation. “Heathrow and the western M25 is now clearly the dominant segment,” says Jones Lang LaSalle partner Stuart Austin.
Colliers International’s head of South East offices, Philip Papenfus, agrees: “I can’t think of anywhere with the same concentration of high-quality offices as Reading.”
Research from Lambert Smith Hampton shows that Thames Valley locations are top of the leader board when it comes to availability of top-spec offices. Highest of the Northern Home Counties in the top 10 is the conglomeration of
Welwyn Garden City and Hatfield in Hertfordshire, where several office campus buildings remain available. Only centres in Hertfordshire make the top 10 at all, and Hemel Hempstead and Watford just scrape in.
Both Essex and Bedfordshire sit just outside as available top-notch space in Chelmsford and Luton has dwindled to a just a couple of buildings.
St Albans: one in, one out
Santa arrived early for St Albans’ landlords in 2011. Days before the Christmas break, tenants signed up in two of the few remaining buildings offering quality grade-A space.
BSkyB, which took space at Threadneedle’s 4 Victoria Square in 2010, bagged another floor measuring 14,100 sq ft and is regearing its existing leases to run for 10 years, with a break at year five.
Nearby, at Rockspring’s Verulam Point, reinsurance broker Aon Benfield snapped up 21,000 sq ft on a 10-year lease, with a break at year five, at a rent of £21.50 per sq ft.
These lettings come as a welcome boost to the cathedral city, historically Hertfordshire’s high-flyer for office lettings, which was rocked earlier in 2011 when it emerged that three prestigious companies may vacate or downsize.
Financial services giant KPMG is to move out of 15,000 sq ft next year because its premises at Aquis Court, Fishpool Street have been sold to St Albans School to create new academic facilities.
Premier Foods, which owns household brands including Hovis, announced in the summer that it is considering downsizing its St
Albans headquarters at Centrium Business Park. And PwC is considering its options ahead of a lease break on its 26,300 sq ft 10 Bricket Road building in 2013.
While this may add more secondhand space to the city’s supply, it will not provide any more grade-A offices, the amount of which has been further diminished by the BSkyB and Aon deals.
Mark Bunting of Aitchison Rafferty points out that this leaves around only 20,000 sq ft on the market in Grosvenor Road, with a further 25,000 sq ft of refurbished space likely to be completed this autumn at Churchill House, Upper Marlborough Road.
After that, there will be virtually no high-quality supply as no new developments are under way. And none are likely to start this year.
“With the uncertainty in the global economy, it will be a brave person building offices in St Albans at the moment,” admits Bunting.
Lambert Smith Hampton director Claire Madden agrees: “This year will be tricky from the occupier side.”
She adds that persuading owners to refurbish existing stock to grade-A standard is extremely difficult: “To refurbish a 40,000 sq ft building will cost around £60 per sq ft, so landlords won’t be doing that on a speculative basis.”
