Julian Barwick, joint managing director of Development Securities, begins his EG interview with a fairy tale. “Once upon a time we were a business with a speciality for office buildings in central London and the West End, but the news at DS is that that very tight specification has changed.”
To cut a long story short, Barwick, sitting in a small conference room in DevSec’s 11th-floor offices in Victoria, London, is describing how his company is being forced to loosen its belt to include a variety of developments in the rest of the UK.
Like any niche business, when the going gets tough in its chosen market, the tough either get going, or get growing. For DevSec, the past two years has seen the business look to London’s suburbs and other major cities and business parks around the M25 to help turn around a business that was getting burnt in its chosen field.
Over the past three years, profits at the company have been hit. In 2002-03, pretax profit fell from £10m to £1.2m. It rallied to £4.6m in 2004, but last year, DevSec’s interim results combined a gloomy market outlook with a pretax loss of £1.3m. The property development and investment company saw its net asset value per share drop 7p to 465p (see panel, p127). Its flagship development, the 240,000 sq ft first phase of Royals Business Park, London, which was completed 18 months ago, has yet to find a tenant. Another 1.3m sq ft of offices is included in the masterplan.
So DevSec reassessed its position. There was a move into business parks with the likes of Cambridge Business Park, Cambridge, and Globeside in Marlow, Buckinghamshire. But a major focus is now on mixed-use. So much so that Barwick reveals that the company’s new tagline could be: “Mixed-use in partnership”. “This is what our business is going to be about in the future.”
“We are involved in mixed-use everywhere now and we like it for two reasons. One, it’s more difficult and complex, which means we can operate it better to create value, and two, it gives us the opportunity to spread risk and combine uses on site,” says Barwick, adding that he believes the future of most office development is now going to be a combination of other uses.
Also, all developments will be undertaken with a local partner. The company is involved in three major regeneration schemes in the regions: City Park, Manchester; Cavendish Walk, in Huyton, Merseyside; and Luneside East, Lancaster.
Barwick holds up a CAD image of Manchester’s City Park, citing it as a prime example of the type of project DevSec wants to work on. The 200,000 sq ft mixed-use scheme in the city’s emerging Green Quarter, close to Victoria station in the city centre, will have three elements: a three- or four-star 200-bed hotel; a car park; and 200,000 sq ft of offices. DevSec bought the land last year from Cosby Homes, which owns 7 acres north east of Victoria Station.
“The three elements will create value in their own right, but they will also create additional value from being combined. There’s an appetite for hotels in the area because the development is so close to the Manchester Evening News arena. The car park is attractive to operators because they know there’s going to be a hotel and offices, and once we have secured the operator for the car park and hotel then our office component is increasing…”
The same principle is being applied to the 16-acre brownfield site on Lancaster’s River Lune waterfront redevelopment. The scheme will include around 350 new homes, 86,000 sq ft of new offices, a hotel and some retail and hospitality outlets. Work on site is scheduled to commence at the end of the year.
The regions may have called, but despite appearances, DevSec is not abandoning London.
Two weeks ago, the company was one of a number of developers which submitted pre-qualification questionnaires in the first round of the battle to redevelop Euston and Victoria stations. That outcome is still to be decided.
But projects actually active include Oriental City on London’s Edgware road, a massive 8-acre development on two levels, planned around three squares and incorporating 500 apartments above shops. A detailed planning application for the £150m development will be submitted this summer. Barwick boasts that local residents were heavily involved in the consultation, with one outcome being the decision to transform the entire roof into a garden.
Paddington Central’s second phase, of 650,000 sq ft, is still very much on track, with construction due to start by April. Paddington Central is the company’s premier mixed-use development in central London, totalling 1.6m sq ft when completed.
The question is whether phase two is being built on a speculative or prelet basis. Barwick looks as though he’s been insulted, saying without hesitation: “On a speculative basis, of course.” The situation at Royals Business Park is clearly not worrying him. When the docks predicament is pointed out, Barwick replies that “any sensible developer allows a two-year void period after completion and we certainly did at the Royals”.
On that basis, DevSec still has another six months’ to wait. Barwick does say that there is interest in the location from an occupier, but says DevSec would construct a building for them. He adds that the 2012 Olympics Games “will have an additional, beneficial affect in the east, but I don’t see us building offices east of the Royal Docks”.
So how confident is he about getting tenants for phase two of Paddington? “Very.” Phase one is fully let, and Paddington is now seen as a bona fide significant office area. With leases coming up for renewal for several of the big surveying firms – for example, Jones Lang LaSalle has to be out of its Hanover Square building by 2008 – is it possible the agent could become a Paddington tenant? Barwick is coy.
However, he says DevSec was interested to see Cushman & Wakefield take a long, hard look at the 230,000 sq ft Chelsfield scheme in Paddington Basin. “I was interested because I didn’t think Paddington was attractive to central London agents. So maybe this time…”, says Barwick, trailing off. Cushmans eventually opted for Portman Square in 2002. As an afterthought, Barwick adds that DTZ did take DevSec’s 1 Curzon Street.
Overall, Barwick is optimistic about the state of London’s office market. “The outlook for the market is favourable for office development in 2006. West End development has been constrained because we haven’t seen many new buildings undertaken, so there is undoubtedly going to be demand from occupiers.”
Middlesex Hospital, owned by University College London Hospitals NHS Trust, on a 2.5-acre site, behind Oxford Street in the West End, is believed to be going up for sale in the next few months, priced at £150-£200m. Just last year, DevSec tried to buy the 0.85-acre north London Elizabeth Garrett Andersen Hospital, also owned by UCLH.
Barwick smiles when asked if the company would be keen to take on the Middlesex. After a moment’s hesitation, he says: “It’s something every developer has been keeping an eye on… and no, it’s not off the radar for us.”
Even though it is now earning a reputation for chasing only big sites, Barwick stresses that DevSec is still working on smaller developments. “This is a real problem because people see us going after massive sites, but we have a programme of smaller projects. They will still have a substantial end value of £15m to £30m, but not on the same scale of Manchester.”
Amid all the talk about development, there is a serious point Barwick would like to get across and that is his company’s commitment to “green” development.
Barwick says: “We are very serious about sustainability. It is not a case of paying lip service, our approach is very pragmatic, the environmental improvements also have to have a commercial benefit. We have learnt a number of lessons from the South Cambridgeshire district council headquarters building we built at Cambourne Business Park. Innovations for future projects will include mixed mode ventilation, solar panels to heat water and grey water recycling.”
Considering all the areas DevSec is involved in – from green to mixed-use to regional development – it certainly seems that company strategy is being followed through. These approaches should work in the company’s favour, if it gets all the elements right. And then, like all good fairy tales, it looks as though this one will also have a happy ending – so long as no wicked witch appears, to trample on DevSec’s progress.
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1953 Born 22 December, Sidmouth Educated Shrewsbury and St John’s College, Cambridge 1976 Surveyor at Daniel Smith 1978 Started at MEPC 1987 Appointed managing director of MEPC Developments 1998 Joined Development Securities 2000 Appointed joint managing director, Development Securities Lifestyle Married with three children. Interests include golf and tennis |
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Last November, Julian Barwick, joint managing director of Development Securities, took on the role of non-executive director of London & Continental Railways, owner of the land at Stratford City, the £4bn development site adjacent to the 2012 Olympics site. According to Barwick, his appointment came about because when the LCR EuroTunnel link to St Pancras is completed in 2007 “the challenge then will be to develop opportunities that exist within LCR’s portfolios.” These include the redevelopment of Kings Cross, and the massive 170-acre Stratford City development. Barwick terms the projects as “the two most significant developments in the UK in the next 10 years”. Unfortunately, the Stratford project had earned itself the title of “the troubled Stratford City Consortium,” after doubts over the viability of land assembly and the reported friction between London mayor Ken Livingstone and Stratford City Development, of which LCR is a member. But Barwick, whom some see as coming in to help restructure the consortium, is full of enthusiasm for his new role. He says that on completion, the mixed-use Stratford City development – comprising 5m sq ft of offices, 1,000 apartments and over 2m sq ft of retail – will become London’s top retail location. The capital’s office sector is a different issue. Barwick believes that for the past 25 years, developers have disregarded opportunities to take office development forward in major suburbs, so stock is outdated. He hopes to rectify this at Stratford. |
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