Anita Howarth charts the fortunes of the office market through a year which has seen the halting of CrossRail, the opening of the Channel Tunnel and the first effects of PPG 13.
DECEMBER 1993
Institutions continue to scour London and the regions for Christmas baubles to decorate their office portfolios. Provident Mutual Life Assurance successfully dangles two headquarters buildings in Stevenage in front of Sun Life Assurance Society for a rumoured price of £38m. Sun Life also dips into the goody bag and takes the 48,000-sq ft (4,459m2) 1 Burlington Lane for £20.6m at an initial yield of 8%.
In central London, the Hong Kong-based Li family buys Langham Estate for £50m, with its 60% occupancy rate and current rental income of more than £4m. The family had withdrawn its offer in the spring but, with when a rival bid fails, it makes another move. The Christmas period sees Scottish Amicable buy the 188,000-sq ft (17,465m2) Thames Exchange development at 10 Queen Street Place, EC4, for £67m.
With 60,000 sq ft (5,574m2) of offices coming off the City market in two lettings, the new year looks promising. British Telecom takes 34,000 sq ft (3,159m2) at Cheapside for less than £18 per sq ft (£193 per m2) and Mercury Asset Management takes 55 King William Street for an undisclosed rent.
JANUARY
Popping champagne corks in central Manchester and Birmingham mark the start of the investors’ year. In the largest deal that the City has seen for 12 months, PDFM Property Partnerships buys the 75,000-sq ft (6,968m2) Arkwright House in Parsonage Gardens, Manchester, for £12m. In a separate deal, AMP Asset Management acquires a 50% share in Arlington Securities’ 148-acre Birmingham Business Park for £20m.
Cheers greet Baring Brothers’ decision to take 84,000 sq ft (7,804m2) in 1 America Square, EC3. But these are muted when Chase Manhattan decides not to take 170,000 sq ft (15,793m2) in Vinters Place, EC4, after 15 months of negotiations. KPMG Peat Marwick also announces its intention to ditch two floors in Canary Wharf.
The Department of Transport wins its battle with the Treasury and takes AMP’s 220,000 sq ft (20,438m2) Great Minster development in Horseferry Road, SW1.
FEBRUARY
January sales in Scotland linger into February with at least three buildings under offer or sold, including a 26,000-sq ft (2,415m2) scheme in Edinburgh’s St Andrews Street, where IBM agrees a sale-and-leaseback with Wellcome Pension Funds reflecting a yield of 6.1%. And Glasgow sees Abbey National buy BP Explorations’ former headquarters in one of the city’s largest-ever transactions. The building is sold for between £35m and £40m, well short of BP’s asking price when the property came on to the market two years ago.
With dwindling supply in the City and Midtown, New Year optimism is also maintained. Mercury Communications and Mercury Asset Management each takes 40,000 sq ft (3,716m2) in EC4 with respective rumoured rents of £15 per sq ft (£161 per m2) and £25 per sq ft (£269 per m2), although MAM is also thought to be getting three years rent-free. In Midtown, Butterworths announces a move into 66,300 sq ft (6,159m2) in Chancery Lane, WC2 from three buildings. The mood is further buoyed by news that the Government is looking for 180,000 sq ft ( 16,722m2) in the West End.
In Manchester, Barclays Property Holdings gets the green light for the redevelopment of 17 York Street – the city’s first speculative scheme since the recession began.
But the long nights combine with a High Court decision to depress the mood at the Department of the Environment. Landlord Euston Tower Investments wins the right to strike out a DOE appeal against a rent review at Euston Tower, NW1, because of delays in the appeal. It could cost the taxpayer millions in additional rent.
MARCH
Akeler Developments steals a march on its competitors with £17.7m enterprise zone funding for its 106,500-sq ft (9,894m2) speculative development on Doxford International Business Park, Sunderland. In another initiative, AMEC steps into CapCo’s shoes to partner the trustees of Manchester’s Cheadle Royal Hospital in a redevelopment of the site involving a 655,000-sq ft (60,849m2) office development.
S G Warburg takes 65,000 sq ft (6,039m2) at East India Docks, Docklands, for a disaster recovery facility, at a reported rent of £10 per sq ft (£108 per m2) with a rent-free of two and a half years. This reinforces reports that Docklands is finding its feet.
And the Mercers Company confirms the letting of 40,000 sq ft (3,716m2) at Barnards Inn, EC4, to Mercury Communications at £15 per sq ft (£161 per m2).
APRIL
German funds prepare to shower London with at least £500m. DIFA leads the way, buying 6-8 Bishopsgate, EC2, for £110m at an initial yield of 6.2%. Prospects of a good return on a quick turnover are reinforced by a £l.5m profit on a 7.7% yield made by a Middle Eastern investor on the sale of Project House, 110 Tottenham Court Road, W1. The 16,000-sq ft (1,486m2) mixed office and retail scheme was bought a year ago for less than £6m with a yield of more than 10%.
In anticipation of a shortage of quality space, CIS revives its 80,000-sq ft (7,432m2) speculative development in Vauxhall Bridge Road, SW1, with completion scheduled for autumn 1996.
Optimism about the future prospects of office investment carries into the provinces with the Danish Bastionen Group’s purchase of the 141,000-sq ft (13099m2) Foster Wheeler House in Reading for £20.85m, reflecting an initial yield of 8.9%. And in Manchester, Shenton Estates breaks the record with an initial yield of 5.2% on its £3.5m purchase of The Atrium, 8-10 Booth Street.
But the decision to switch the Channel Tunnel terminus from Kings Cross to St Pancras prompts London Regeneration Consortium to withdraw its plans for a 5.25m-sq ft (487,725m2) office city on the 134 acres (54 ha) of railway land at King’s Cross.
MAY
Politicians give mixed signals about rail developments: a Government announcement that the high-speed rail route is to go through the centre of Ashford, rather than bypassing the town, is welcomed by local agents. But the property industry expresses concern about London’s future as an international centre after a commons committee blocks the £2.5bn CrossRail private bill.
This concern is reinforced by a Gallup Poll of leading investors sponsored by Richard Ellis which shows that 37% believe that London’s status has declined during the past five years because of pressure from Frankfurt and Paris. Despite this, 41% intend to increase their presence in the City and West End. A further 43% plan to maintain their level of investment.
In support of this, Despa acquires the 150,000 sq ft (13,935m2) Hill House, EC4, for less than the £67.5m asking price and British Land offers £40m to British Pension Funds for 51 Eastcheap, EC3. Core City yields continue to harden with the purchase of two overrented investments: St Clements House and Gartmore House, both in the heart of the Square Mile, for respective yields of 7.2% and 6.2%.
JUNE
Warmer weather arrives and new development proposals are taken out and dusted: Eagle House and Chestergate House, both in SW1, are put on the starting block with Haslemere Estates due to start constructing Eagle House in August. National Westminster Bank applies for permission to expand its development at 1-2 St James Street and 6-7 Charles Street, SW1, to more than 100,00 sq ft (9,290m2).
But not all development is speculative: Stanhope Developments and Kajima chase a prelet on a 210,000-sq ft (19,509m2) development at 1 London Wall, EC2, and Wates City of London, seeks a pre-funding agreement for its development at 90 Queen Street, EC2.
In Scotland, the strength of the Edinburgh market is underlined by a 5.75% initial yield realised on the sale-and-leaseback of Rutland Court by Baillie & Gifford.
But the prospects for office development in Swindon suffers when Thamesdown Borough Council flouts Government guidelines by drawing a distinction between office and industrial development within the B1 use class in an attempt to promote industrial employment.
JULY
The Government decides against plans to introduce laws covering upward-only rent reviews, confidentiality clauses and disputes between landlord and tenant, opting instead for a code of practice.
On the investment front, overseas buyers make inroads into the markets. Swedish fund AP Fonds buys J P Morgan’s headquarters in 1 Angel Court in the City for £62m at a yield of 6.75%. And Danish insurer PFA secures its second UK office investment in a year with the £25m purchase of a 142,500-sq ft (13,238m2) development in York.
BUPA joins the expanding owner-occupier club by purchasing the 66,000-sq ft (6,131m2) Chesterfield House on Bloomsbury Way, Holborn, for significantly over the asking price of £7m.
In Docklands, office action is hotting up, but rent levels have yet to harden. Bear Stearns double their space at Canary Wharf Tower, but headline rents are still about £22 per sq ft (£237m2) plus incentives.
AUGUST
Secretary of the environment John Gummer rejects Lloyd’s Register of Shipping’s application to build a 350,000-sq ft (32,515m2) headquarters on greenfield site near Liphook, Hampshire, citing PPG 13 as the grounds for his decision.
Marples Developments lets 30,200 sq ft (2,806m2) at its Greencourts Business Park near Manchester airport, to Wellcome UK in one of the largest office lettings in south Manchester for two years. The asking rent is £15.50 per sq ft (£167 per m2)
And in Crawley, the 56,000-sq ft (5,202m2) Gatwick Approach is let by PosTel to tour operator Owners Abroad for an agreed rent of £15 per sq ft (£161 per m2), after two and a half years on the market.
Docklands’ purple patch continues with Radio Communication Agency taking 78,000 sq ft (7,246m2) in Wyn-Ro South Quay Plaza 3 on a 15 year lease at more than £18 per sq ft (£194 per m2). Barclays de Zoete Wedd also ups its requirement to 750,000 sq ft (69,675m2).
SEPTEMBER
Developers are blasted by a chilly wind from the government when tougher policies for protecting historic buildings and conservation areas under PPG 15 are announced. And the tide ebbs from Havering as the DOE selects Ebbsfleet for the Channel Tunnel fast-link rail station. The DOE also publicises its strategic plan for the renamed Thames Gateway east London initiative which meets the general approval of the industry. At the same time, calls go out for the DOE to take regeneration further with more funding assistance.
There is a welcome letting in Midtown as vacancy rates are reported to rise from 6.2% to 7.7%. The Office for Standards in Education is tipped to take Alexandra House, the 55,000-sq ft (5,110m2) Lundbergh redevelopment in Kingsway, WC2. The rent is rumored to be £25 per sq ft (£269 per m2) on a 15-year lease with an 18-month rent-free. The City is also cheered by the news that Credit Lyonnais is looking for a 250,000-sq ft (23,225m2) headquarters in the City.
OCTOBER
Up to 250 surveying jobs are at risk following a decision by the Valuation Office Agency to close 24 offices by March 1996 to save costs. British Land and Liverpool Victoria swoop on the City and pay £44.5m for Summit House at 70 Wilson Street, EC2, and 1 Bishopgate, EC2. Their respective tenantsare the Stock Exchange and Banco Santander.
Investors show that they are willing to pay above asking prices for some properties, as 1-3 Dorset Rise, EC4, goes to a Far Eastern investor at more than its asking price of £54m, barely a week after it was put on to the market. The initial yield is 6.25%.
Railtrack Property’s plans for a new office scheme on land close to the Quay Point site hits the buffers when Bristol Development Corporation blocks the scheme.
NOVEMBER
An improving investment sector encourages the funders of Cannon Bridge development, EC4, to market the property for £70m. The scheme comprises the River Building, let to LIFFE, and the Atrium Building, occupied by GNI, Standard Bank, Allied Trust Bank and LIFFE.
Morgan Stanley takes 350,000 sq ft (32,515m2) at London Docklands’ Canary Wharf. Morgan Stanley already occupies 200,000 sq ft (18,580m2) there.
In Leeds, Norwich Union is set to take the plunge into the prime Leeds speculative market with its 125,000-sq ft (11,613m2) City Square project in Park Row.
