Ian Martin is wondering if life is always this sweet. Only a few weeks into his transition from corporate banker to property developer, and he is already presiding over a speculative office scheme in Leicester that everyone says is a sure-fire winner.
Martin, the former Midlands regional head of real estate at Lloyds Bank (and JLL agent), joined Norfolk-based Marlborough Property Group as a director in late August.
Marlborough, a property business backed by the Dunelm family, is behind the first substantial speculative development in Leicester for years – 10 according to some estimates, 15 according to others. Either way, the 34,000 sq ft development at the Watermead Business Park, north of the city centre, will end a very, very long speculative development drought.
Martin explains: “The timing is good. We’re the only one out there to offer speculative development and yes, there is real demand, so it’s all looking good. We’ve had the first site meetings, piling has begun, and completion is planned for July 2015.”
He adds: “We’re not quoting rents but I expect we’ll be talking around the £17 per sq ft mark because this is an unusual building. We’ve upped the specification from the normal business park spec – it has roof terraces, for instance.”
“If we could find the land, I’d like to think more developments would follow.”
One building at Watermead is a 22,480 sq ft project, the other is 11,790 sq ft – and there is barely a soul in Leicester who doesn’t think the idea is brilliant.
Jenny Clarke, associate director at Innes England in Leicester, is among those cheering loudest.
“There’s scarcely anything over 5,000 sq ft available out-of-town around Leicester. Tiny suites here and there, but nothing serious. Marlborough has the guts to test the market and we’ve four or five serious requirements out there to be satisfied – all indigenous demand, but all in 1990s buildings or older, and looking for the size of buildings Marlborough has to offer.”
Clarke is advising a local occupier on a 16,000 sq ft requirement – she expects her client to opt for design-and-build, for reasons of their own – but she is sure others will smile on Marlborough. Her only quibble is about the rent. “For business park floorspace, £17 would be breaking the market [a record rent],” she says, but adds: “If it’s good specification, though…”
Matthew Smith, lead director at JLL in Nottingham, is also enthusiastic. “Marlborough’s decision makes sense,” he says. “It’s easy to forget it is seven years since we saw any kind of development, apart from a handful of design-and-build projects. Leicester has gone through peaks and troughs of demand, but now it is peaking and there will be potential occupiers. Tenants are looking for new premises, can’t find them, and are turning to out-of-town locations.”
Meanwhile, Phil Quiggin, director at letting agent Lambert Smith Hampton, is – unsurprisingly – the most enthusiastic of them all. “Leicester’s office market is outperforming others in the region,” he declares, pointing to the 105-acre Grove Park out-of-town site, now filling up fast. Just 5.5 acres remain.
“There are three opportunities left for occupiers at Grove Park and we are talking to more than three potential occupiers, so we’ll fill those quickly, and we know there are new requirements in the market,” he says.
“This is about timing – we have five or six indigenous occupiers with lease expiries coming, or takeovers to consolidate, and they need new space.”
Total new requirements in Leicester amount to around 100,000 sq ft, Quiggin estimates.
But it’s no picnic getting speculative office development going in the East Midlands. Nottingham’s secondhand market is too strong and too appealing and has crowded out speculative schemes so far. And in Derby, where Friar Gate Square blazed a trail, success has not come easily (see box, above right).
The region’s city centre office markets are stuck in a catch-22 dilemma, says JLL’s Smith: building big enough to cover the cost means building too much office space; build the right size for the market and you put profit margins at risk.
He explains: “The difficulty in all the East Midlands cities is that you need a quantum of office development to justify the development costs, and a lot of sites are simply too big for the limited local office market. Too much development and it’s not viable; too little and it’s not worth doing… The Goldilocks point is about 20,000-70,000 sq ft, but anything around 70,000 sq ft gets tricky because it’s a large lot size in a low-value market. Investors would consider rental growth a risk, so the yield will get discounted.”
Today Marlborough’s Ian Martin has found a way to make the sums add up for a Leicester out-of-town development in a local market that looks as strong as ever. But whether anyone will follow the developer remains a matter for mathematical conjecture.
Taking to the skies
“Once the works on the A453 are completed, East Midlands Airport will become the major business location it was always meant to be.”
So says Lambert Smith Hampton’s Phil Quiggin – and not surprisingly the airport’s owner, Manchester Airport Group, couldn’t agree more.
Last month it published a new masterplan showing scope for offices of 17,000-37,000 sq ft on a site immediately next to the M1 motorway’s junction 23a. FHP and Colliers International are joint agents.
Lynda Shillaw, divisional chief executive, property at MAG, says: “East Midlands Airport is the UK’s hub for air cargo and this highly connected location offers the region a wealth of strong development opportunities, across a variety of sectors and uses. The masterplan that we are developing has identified some strong opportunities for further transit, logistics and office space clustered around the airport site.”
Derby Friar Gate Square: racing to a deal?
It is now two years since Manx developer Lowbridge took the plunge and built Derby’s first speculative office scheme since the recession.
The 32,000 sq ft first phase at Friar Gate Square missed out on an early letting to a major corporate – rumoured to be Rolls-Royce – and has since languished. It is now understood that about half the building is under offer, although letting agents CBRE and Innes England declined to comment. Rumours that serviced office operator Regus is the tenant have been discounted.
Competition from the perennially popular edge-of-town office campus Pride Park has hampered lettings, say observers.
JLL director Matt Smith says: “Friar Gate is a bit disconnected from the city centre, and that’s a challenge the building has to overcome. Until now it has been too easy for occupiers to pursue the Pride Park option instead.”
Friar Gate was part funded by Derby city council’s £17.5m Regeneration Fund.
New walk or old story?
Leicester city council’s ambition to build a new HQ at its New Walk site has been rumbling on for much of the past decade.
It may be a sign of the frustration caused that earlier this year council leaders contemplated blowing up the building, which had been their main office base since the 1970s, as it was the cheapest demolition option.
In June the council finally decanted staff to the 107,000 sq ft new City Hall, a recently refurbished building in Charles Street, and to a handful of other city centre offices. Now the 1.7-acre city centre New Walk site is tipped for a 198,000 sq ft redevelopment – but progress remains slow. By summer 2015 it should be ready for rebuilding.
A council spokesman says: “We’re talking to shortlisted bidders and will select a preferred development partner for the New Walk Centre site towards the end of this year.
“It’s expected that the land could be used for around 50,000 sq ft of commercial office space, with complementary retail, residential and leisure mixed-use schemes contending strongly for this prime location.”
