Staying put: Developer Targetfollow must live with its KFC neighbour until it finds prelets for its proposed headquarters in Norwich. By Stacey Meadwell
It seems that Targetfollow, a developer with a £3bn investment and development portfolio, will have to endure the aroma of fried chicken in its Norwich headquarters’ lobby for a few years yet.
Grosvenor House on Prince of Wales Road sits above an outlet of KFC, and the developer’s plan to relocate to sweeter-smelling offices are on hold until the local market and economy show signs of a recovery.
Targetfollow received planning permission for its 200,000 sq ft mixed-use Duke’s Wharf scheme on the former Eastern Electricity site in the city in November, and is planning to develop a UK headquarters, thought to be in the region of 20,000-25,000 sq ft, as part of the scheme.
But, without a substantial chunk of prelets, the £50m development, which includes a total of 125,500 sq ft of office space, is on hold.
Julian Wells, development director at Targetfollow, explains: “The way that funding is working is that it is linked with occupiers, so if you can secure occupiers you can move forward with financing.”
He says that, while the developer is still committed to the scheme, it will not happen as quickly as originally planned. Wells wants to see between 50% and 100% prelet before he feels confident enough to approach the financial market to raise funds.
Having to achieve sufficient rental levels on prelets to satisfy potential funders may also hold the development back.
Wells admits that yields “have moved out a bit”. A year ago, he was confident that the scheme would achieve £20 per sq ft – £3 higher than the city’s then headline rent. However, he now says that rents should be “somewhere between £17 and £20 per sq ft”.
In fact, the highest deal done last year was £16.50 per sq ft, according to Bidwells, and landlord incentives are becoming more generous.
Greater incentives
Also according to Bidwells, rents over £17 per sq ft are unlikely to be achieved until 2011.
The fact that there are unlikely to be any cranes over Duke’s Wharf this year comes as no surprise to local agents. William Jones, partner at Bidwells, says: “It is very difficult to make a new development work at the moment. Yields have moved out by 2-2.5 basis points, which has knocked 20-25% off values.”
While office take-up last year was only just shy of the five-year average (see graph), the feeling is that it will be down by one-third this year. Jones says that supply has increased to around 410,000 sq ft, a figure backed up by Savills, but this is still lower than the last recession in the 1990s, when it reached 500,000-550,000 sq ft.
He also points out that, during the last recession, a lot of occupiers were on long leases whereas that is not so much the case now, giving the prospect of churn “even if occupiers are downsizing”.
However, Caroline Morton, associate director at Savills in Norwich, adds: “We have had some enquiries, but capital expenditure is putting companies off.”
Comfort can be drawn from the fact that companies such as Targetfollow and Jarrold, which has permission for a further 102,000 sq ft at its St James Place scheme, are unable or unwilling to build speculatively because it means that the market has little new stock available, and vacancy rates can be maintained at a low level.
Bankside 300 on Broadlands Business Park is the most notable building available. Targetfollow also has outline planning permission for a mixed-used scheme at Harford Place. Fortunately for the developer, it already has 150,000 sq ft of retail warehousing let and providing an income at the site.
Targetfollow plans to increase the amount of commercial space on the site to 650,000 sq ft, which will offer retail, leisure and community uses, as well as more than 200 homes. Like Duke’s Wharf, it will be prelet led. It will also be built in phases.
So, it seems for now that Targetfollow – and by extension, the market – will have to remain content with the whiff of KFC, but with an eye on the chicken chasseur once finances allow.
