Cambridge’s potential as western capital of the UK’s fastest-growing region has ensured continuing developer interest. But vacant property and falling rents characterise parts of this market too, as Denis Hall discovers.
Scientific research is Cambridge’s cottage industry,” says Carter Jonas’ John Granger. “It has remained strong while other sectors have ebbed and flowed.”
Rumours that the Wellcome Trust and the Medical Research Council might take 60,000 sq ft to 100,000 sq ft at Capital & Counties’ Hinxton Hall highlights both the long-term strength and current weakness of the city’s office sector. The proposed development at Hinxton Hall is representative of the type of stock which has sprung up to service the hi-tech users who have moved into the area during the past 12 years.
CapCo plans to develop the 55acre site and its listed 18th-century mansion – located 9 miles from Cambridge at junction 9 of the M11 – as 187,000 sq ft of offices. Marketed by Bidwells and Hillier Parker, the scheme is aimed at tenants who would like to be close to the university’s renowned research facilities.
But it is a measure of the decline in demand that this would be the biggest deal here for three years. Until now, the most important recent deal was agreed at Merivale Moore and Tartan Developments Vision Park near Histon. There, Norwich Union has taken 5,155 sq ft in Conqueror House at £11.50 per sq ft, with one year rent-free and break clauses.
At Melbourn Science and Business Park, letting agent Connell Wilson has let 10,000 sq ft since the start of the year to Cambridge Antibody Technology, Wongs International and Advanced Technology Management at rents of about £10 per sq ft.
These deals marked a new low for out-of-town rents. “Basically, the developers have bought tenants – and it’s worked,” says Bidwells’ Jane Onions.
Just eight months earlier, Barker Storey Matthews caused consternation when it broke the city’s deals famine of almost 15 months. On behalf of General Electric Co, the firm agreed a deal involving 25,000 sq ft of offices and research and development space at Bride Hall and Equitable Life’s Cambridge Science Park in a sublet to Unipalm. The rent was set at under £17.50 per sq ft, with 12 months rent-free and another year at half rent.
Soon after, Bidwells, the science park’s agent, signed up Amgen (UK) for 44,000 sq ft and the Computer Centre for 12,000 sq ft at rents of about £15 per sq ft with rent-free periods and other incentives.
But now the market has to contend with the implications of the latest batch of deals, which compare with rents achieved in 1990 of up to £23. “Any uptake by companies on existing developments at any level have been welcomed by both agents and developers,” explains Connell Wilson’s Daniel Hopes.
This trend is likely to continue while the city struggles with what local agents estimate is an oversupply of up to 500,000 sq ft of modern offices. Nevertheless, some are pressing ahead with plans for speculative development. Bride Hall and Equitable Life have decided to start work on the 82,000-sq ft second stage of the scheme’s fourth phase. St John’s College is considering the addition of another 60,000 sq ft to its 108,500-sq ft Innovation Park.
These new starts are bad news for those with secondhand offices on their hands, warns Bidwells’ Jonathan Burroughs. “Developers are sitting around with empty new buildings and they are throwing lots of money at tenants to move out of their existing space into new space.” In spite of these efforts, some modern schemes are proving to be difficult to let.
Granger points to two buildings with which he is involved as examples of a wider trend. Royal Life’s 10,010-sq ft Titan House stands in Castle Park with frontage to Castle Street. Despite 28 parking spaces and blue-chip neighbours such as Coopers & Lybrand and Lloyds Bank, the scheme has remained unlet since it was built four years ago. Agents Carter Jonas and Healey & Baker quote an asking rent of £15.50 per sq ft.
CJ is sole agent on Friends’ Provident’s 10,077-sq ft Intercell building at the junction of Coldhams Lane and Newmarket Road. Complete with 58 parking spaces, the building has been on the market for two years.
Here, says Granger, FP is now prepared to sell the freehold. Some are taking a more defiant stance. Healey & Baker is quoting a rent of £25 per sq ft for the 100,000-sq ft City House. The firm’s Neil Meredith says he is confident of a letting because there are few buildings of this size on the market.
Other large chunks of property which have still to be let include 56,185 sq ft at Vestey Estates’ the Quorum and 35,000 sq ft at Trafford Estates’ Quayside. Asking rents on these schemes range from £12.50 per sq ft to £15 per sq ft. Until properties such as this do attract tenants, the bulk of the 250,000 sq ft of unactivated planning consents are unlikely to get started.
The only glimmer of hope for beleaguered landlords is the city’s draft local plan, now at deposit stage, which threatens to clamp down heavily on further office development. The effect, says Granger, is obvious. “Quite simply, rents will rise as supply is cut.”
While office occupiers fight shy of the Cambridge market, retailers and retail developers display no such reticence.
With Cambridge’s 460,000-strong catchment population forecast to expand by 13% during the 1990s, the race is on for representation in this subregional shopping centre, which serves the western zone of what is still the UK’s fastest-growing region.
“Population growth and the resultant increase in spending potential could support about 460,000 sq ft net additional retail floorspace in Cambridge by 1996 and 750,000 sq ft net by 2001”, claims Patricia Ring of Jones Lang Wootton’s retail consulting team.
In addition to what Ring describes as “a more upmarket than average “resident population, Cambridge also benefits from trade generated by 3.5m tourists who spend an estimated £20m annually and 16,000 resident students.
But the city’s retail market has its drawbacks. Januarys’ Will Mooney describes the quality of Cambridge shopping as “exceptionally poor”. While this is seen as harsh by fellow retail specialists, they agree that shopping facilities in the city centre are inadequate.
“The pattern of retail provision and shopping frontages is fragmented and many retailers are trading from premises which fail to meet their current requirements in terms of pitch, unit size and servicing provision,” says Ring.
The restrictions on major new development in Cambridge’s historic core and a tightly drawn green belt means that the battle to provide new retail stock has shifted out of town. For instance, 2 miles from the city centre, a council-sponsored feasibility study on the 220-acre Chesterton sidings site has now been completed. The study analysed the site’s suitability for 500,000 sq ft of shopping and a new 15,000-seat football stadium.
However, attention is focused on proposals for three out-of-town shopping centres of about 500,000 sq ft each, all competing for an existing structure plan allocation; the proposals are now with the Environment Secretary and a dcision is expected early next year.
The three are: Capital & Counties’ scheme at Bar Hill; Grosvenor Developments’ and Tesco’s project at Duxford; and one by Conrad Phoenix at Abington.
Grosvenor seems to have stolen a march on its rivals, with letting agent Januarys claiming that Cambridge department store Robert Sayle (John Lewis) will anchor the scheme with Tesco and that 80% of the scheme is already prelet. But, while an out-of-town store might appeal to BhS or Littlewoods – just two of several national retailers keen to get a foothold here – no such scheme will be trading before 1996.
In the short term, the only significant opportunity for additional floorspace in the city centre lies with Grosvenor Estate Holding’s plans to extend the Grafton Centre. An application has been submitted for a variety store, food court and shops totalling 100,000 sq ft, plus a nine-screen multiplex cinema. According to Grosvenor, this new investment has come about as a result of Cambridge council’s agreement to grant Grosvenor an option to buy the freehold of the existing scheme.
Built in 1978, the 250,000-sq ft Grafton Centre stands between the A603 ring road and Newmarket Road. Despite its location well to the east of the city’s traditional shopping area, the centre’s modern facilities attracted a host of retailers. But several agency boards on Fitzroy Street and Burleigh Street alongside the centre suggest that this district is suffering.
The Grafton Centre itself has a few vacant units, but it retains several distinct advantages. In a city crippled by inadequate parking facilities, it can claim 40% of total shopper parking. And, once out of their cars, visitors can trade at such well-known names as Debenhams, C&A, Principles, Dorothy Perkins, Thomas Cook and Our Price.
In addition, the Grafton Centre could soon boast the only department store in central Cambridge. As mentioned earlier, Robert Sayle will move out of town if the Duxford scheme goes ahead. And the city’s other department store, Eaden Lilley, could close if plans for its redevelopment proceed.
Attempts to assemble a major retail site here collapsed when the owners of the Eaden Lilley property rebuffed attempts by Burwood House, owner of the adjoining Joshua Taylor & Co building, to buy the Eaden property.
Having failed in its five-year struggle to pull together a site, Burwood is now offering for sale the 75-year leasehold on its Joshua Taylor building. The lease on the 37,224-sq ft building is subject to rent review in 2004 and 14 years thereafter. The passing rent is £390,000 pa. There is also speculation that the Eaden Lilley store is now also under offer and will be redeveloped next year.
Around the corner, Petty Curry retains its status as the city’s prime pitch. Rents here were thought to have fallen to about £150 zone A from a high of £165 achieved two years ago with lettings to, among others, Country Casuals. A year ago, HMV is thought to have paid zone A £125 for a unit on Lime Yard just off Petty Curry. But British Telecom has at least matched the street’s historic high with its decision to take the former Freeman Hardy & Willis unit, 32 Petty Curry, at more than £165 zone A.
Elsewhere, zone A levels on the main tourist pitches of Trinity Street and Kings Parade hover at about £40. Here, Bidwells let a 1,500-sq ft unit at 47-49 Sidney Street to Edinburgh Woollen Mills at £75,000 pa, with a nine-month rent-free period. Top zone A in Rose Crescent – characterised by speciality shopping – stands at £65.
Barclays Nominees’ Lion Yard occupies a central section of Cambridge city centre, but it is this location which is currently the chief cause of contention between the council and the centre owners. Built in the early 1970s, the 118,407-sq ft centre now needs substantial refurbishment. But the main mall has traditionally been a right of way and Barclays is not prepared to invest in refurbishment until it can secure its asset at night. As yet, the council has proved to be unwilling to offend public opinion and agree to such a closure.
Retail warehousing in the city has had an uncertain history. However, a growing awareness of Cambridge’s potential has stirred the interest of warehouse retailers and hence developers. So far, this sector has had to make do with the Coral Park site and Newmarket Road, now dotted with first-generation retail warehousing.
“We have never had a site properly allocated for retail warehousing,” explains Jonathan Burroughs. “And you could justify a retail warehouse park of about 150,000 sq ft if you could find a good local site.”
The major supermarket chains are also in the running for new schemes in the city. “The local plan says that there is need for at least one other superstore in the city and it should be located on the south side,” says Burrows.
There are several contenders. Safeway has agreed terms for the acquisition of the Homerton College site and wants to promote the scheme at the local plan public inquiry. At Fulborne, the South East Anglian Health Authority proposes to develop a superstore, while Sainsbury tries to gain consent for a site in the north of the city.
The future of industrial development around Cambridge looks more promising than its past. Until now, demand for sheds has not compared with other more central regions of the country. “There has been no history of prelets in this market, even in the good times,” says John Granger.
Central Cambridge has little such development. “There has always been a shortage of sheds. This is why the satellite towns play an important role in the provision of this space in a way which, so far as I know, is unique to this area,” comments Granger. The construction of the A1/M1 link and associated road improvements will create a dual-carriageway link between the Midlands and the eastern ports which should benefit this region.
In Cambridge there is much debate on the proposed southern bypass, which the county and city councils are considering. The road would connect junction 11 of the M11 to the A45 to the east of the city. But these infrastructure improvements have yet to boost demand.
According to Connell Wilson’s Daniel Hopes, rents are still declining. “The market has been active at the small end in units of 1,000 sq ft to 5,000 sq ft. However, rents have fallen dramatically from a high of £8 per sq ft achieved on Clifton Industrial Estate during the late 1980s to just £5.50 per sq ft on new stock.”
There are several projects now on the market. Vanbrugh Land’s Cardinal Distribution Park at Godmanchester provides two high-bay warehouses of 80,000 sq ft and 100,000 sq ft. Of this development, Noyes & Noyes’ Andrew Noyes says: “The rationale for such a scheme on the east side of the Midlands was fundamentally good, but the timing may have been premature in the light of the prolonged recession.”
On the south-eastern side of Cambridge, Marchbrook’s College 60,000-sq ft business park offers the only new light industrial space close to the city centre. There are rumours of imminent signings, but Hopes believes that agreed rents will probably to be closer to £5 per sq ft than the £7.25 per sq ft asking rent.
Perhaps the scheme which attracted most preliminary interest in this sector is Chartwell Land’s Links Industrial Park at Bar Hill. Providing 41,000 sq ft, the development was funded by Abbey Life and designed by the Tartan Group. A rent of £7.25 per sq ft is being quoted and no lettings have been agreed so far.
Equity Estates and Equity & Law’s Interchange development at Huntingdon is now nearing completion. The 120,000-sq ft scheme offers 8m eaves in units of 9,800 sq ft to 28,500 sq ft. A rent of £5.85 per sq ft is being quoted.
Churchmanor Estates and Ashford Construction have just started work on an 80,000-sq ft complex at Woodside Green, Bishops Stortford, close to Stansted Airport and the M11. Rents are understood to be set at more than £7 per sq ft.
This wave of new development could bring problems of its own, warns Noyes. “The total amount of floorspace within these schemes is almost 500,000 sq ft in a relatively confined area. So it will be the very best schemes and the most flexible landlords who will attract tenants and rents will not be at the level that most developers originally imagined, especially those started some time ago. The size of the schemes will attract reasonable covenants, but it will be the need to generate income which will result in the first lettings.”
Like everyone committed to the Cambridge area’s property sector, industrial developers must hope that East Anglia’s status as fastest-growing regional economy will ensure continuing demand in the face of the UK’s longest recession for 60 years.
