Unsettled outlook

Some have the wind in their sails; others are becalmed. Liverpool’s office developers have rarely experiencedsuch mixed fortunes. David Thame reports Fittingly for a maritime city, the waterfront has been the main attraction in Liverpool’s office scene. The Princes Dock office scheme has been a complete success – not just for Liverpool but for the entire North West. A string of lettings, including last year’s 70,000 sq ft (6,500m2) prelet to Capita on behalf of the Criminal Records Agency, has kickstarted the latest 100,000 sq ft (9,290m2) speculative office development. A new masterplan with an emphasis on denser development and taller buildings means there is now scope for 300,000 sq ft (27,870m2) of additional offices, bringing the city’s total office space to 1.2m sq ft (111,480m2). Princes Dock is under the sole control of Mersey Docks & Harbour Co following its £9.9m buyout of its former joint-venture partner, Flint-based David McLean Developments. Mark McNamee, outgoing chief executive at Princes Dock, says the developers have been able to make the scheme work because they are unfettered by institutional restraints. “We are not an institution. We are looking for cash flow – and that means we can be flexible,” he explains. Quoting rents on the scheme are around £16.50 per sq ft. Concerns about the site’s accessibility from the city centre have been laid to rest, says McNamee. “There will be new pedestrian crossings, a tram stop 200 yards away, and we are becoming part of the city centre. While transport connections were a legitimate concern for potential tenants, they are not now,” he says. Letting agent Nick Rice at Irving Rice says further prelets are a serious possibility. “The gap between secondary rents of around £12.50 per sq ft and prime rents of around £16 is narrowing, and that puts schemes like Princes Dock within reach of local occupiers. They can afford to make a leap that, before, was just too large.” Local developer Beetham Organisation hopes to emulate Princes Dock at its £50m, mixed-use development at Old Hall Street. It plans a 30-storey residential tower along with 142,000 sq ft (12,190m2) of office space. A 60,000 sq ft (5,570m2) prelet to the Passport Office is thought to be close to agreement, although Beetham’s development director, James Hubbard, is coy. “We are talking to potential tenants and hope to start work on site on the office element this summer,” he says. “It’s a scheme that can be delivered. It’s the first time for a long time that the city’s office core has been able to offer a genuinely big office building.” Letting agent Stuart Keppie at Liverpool firm Keppie Massie says: “It really demonstrates how the city has changed.” While some office schemes appear to be cruising to success, others are stuck in the doldrums. The biggest is Walton Group’s 356,000 sq ft (33,070m2) Exchange Flags office complex. With legal action by English Partnerships pending for the recovery of a £4.4m city grant, agents DTZ and Mason & Partners now off the job, and talks with housebuilder Alfred McAlpine about a mixed-use scheme believed to be over, the future of this vast chunk of space is unclear. Stain on the market According to Keppie, Exchange Flags’ problems are creating a serious drag on the market. “Until Exchange Flags is sorted out, it will make investors nervous. It is bound to be a stain on the market,” he says. Another redevelopment to have spent a long time at anchor is the £60m, mixed-use Richmond House, promoted by Rumford Investments. It eventually won outline planning consent late last year after plans for a 40-storey skyscraper were ditched. The revised development includes 142,000 sq ft (13,190m2) of office space in atwin-tower design. Rumford has recently submitted a revised planning application that replaces 120 large apartments with 150 smaller ones. A spokesman says: “This is not a fundamental change. We hope it will be approved later this summer. Demolition work is in progress and show flat construction is under way.” He adds: “Rumford is preparing to move fairly quickly on the office element.” Given the site’s tangled history, however, few in the market expect to see new office space soon. Meanwhile, observers say there is precious little wind in the sails of Teesland’s 13,200m2 (142,000 sq ft) City Square scheme, Moorfields. Getting the site developed has proved unexpectedly difficult. The city council removed its original preferred developer, British Land, because progress was slow. Teesland then took over and hopes of development were high, but its relationship with the council since appears to have lost some of its glow. Senior figures at both the city council and regeneration agency Liverpool Vision are known to be concerned about how long the development is taking. Rumours that Teesland is to be thrown off the site and an alternative developer installed have resurfaced after a 12-month intermission. Teesland is understood to have been given a July deadline to demonstrate action. Charlie Parker, the city council’s executive director of regeneration, does not try too hard to dispel the rumours. “It’s true we are concerned that this development has taken longer than anyone thought,” he says. “We have been in detailed discussions with Teesland, and the council has taken a more interventionist approach to what happens at this site. Both sides recognise there is only a short time to resolve this.” Teesland director Mark Hancock says: “We are still searching for a prelet, and the best way we can satisfy the council is by doing that. The council would be entitled to get rid of us if we were not performing, but since we always said we’d need a prelet, we have secured planning permission, and we have the contractor ready, we are doing everything we can. And they recognise that.” Hancock blames the market. “We need a 50,000 sq ft prelet before we can start building and there hasn’t been a letting of more than 20,000 sq ft all year,” he says. Others in the Teesland camp blame the North West Development Agency for promoting the Fourth Grace office scheme at the Pier Head, thereby damaging City Square’s market position (see panel). Says one insider: “The Fourth Grace plan is madness. Why the hell is the public sector promoting something with a poor chance of success in a marginal location, when the city council is desperate to see a start at City Square? We keep pushing Liverpool Vision to support us and promote the scheme, but it seems like they are working against it.” Outsiders regard the situation as less complicated. Simon Reynolds at GVA Grimley, joint letting agent at Princes Dock, voices a widespread view when he says: “The Fourth Grace isn’t an issue. There has been a disappointing lack of activity at Moorfields. It should have been built two years ago.” The next big test of the market will come at Old Hall Street. The English Cities Fund, along with the North West Development Agency, Littlewoods and NCP, arepreparing the way for a 1.2m sq ft (111,480m2) office scheme. They are in the final stages of land assembly and have begun prelet talks with Merseytravel, whose 140,000 sq ft (13,000m2) requirement needs to be satisfied between 2005 and 2007. If ECF and its partners manage to get the scheme afloat, then the Liverpool market will truly have come of age. Mixed market Public sector has smaller influence Office take-up in Liverpool was 485,420 sq ft (45,100m2) in 2001, much the same level as in the previous year. And the figures, prepared by the highly respected Merseyside Property Forum, show that the public sector contributed to just 20% of Liverpool office lettings, compared with 40% the previous year. Mason Owen partner Chris Connor says: “These figures show another strong year for Liverpool. While there are still concerns that the public sector contributes some of the biggest single lettings, it is noticeable that the private sector is now much more dominant.” Strong demand has put pressure on rents. Neil Kirkham of Insignia Richard Ellis says: “The shortage of grade-A office accommodation has led to rentals rising from approximately £9.50 per sq ft three years ago to recent transactions of £12.50 per sq ft. This is over a 30% rise.” The largest single letting was at Edward Pavilion, Albert Dock, where Swiss Life took 66,000 sq ft (6,130m2). Nearly 60% of deals were for office suites of 2,500 sq ft or less. Fourth Grace Fracas over role of new landmark Not for the first time, and probably not for the last,inter-agency warfare has broken out in Liverpool. This time the subject of contention is the so-called Fourth Grace (see Tall buildings, p89). Plans for a fourth landmark building to complement the city’s famous skyline are long-standing. City fathers have dreamed for decades about adding to the Three Graces: the Liver Building, the Cunard Building and the Port Authority Building. In January, the North West Development Agency acquired the 3-acre (1.2ha) Mann Island site, set aside for the Fourth Grace, for a sum reputed to be close to £2m an acre. The deal closed years of delicate negotiations with the owner, a car dealership. An international design and development competition for a £15m Fourth Grace office building was launched by the North West Development Agency at the MIPIM convention in Cannes earlier this year. Urban regeneration agency Liverpool Vision is expected to select a developer by November. Since the competition’s launch, however, the situation has become more complicated. Liverpool city council chiefs have expressed the desire for a museum – perhaps with a Beatles theme – to attract tourists. They think another generous public-sector handout is justified to get the project going. But NWDAbosses groan when the Beatles museum idea is put to them. One insider explains: “Liverpool needs another museum like it needs a hole in the head.” The NWDA prefers an office-led scheme that would answer known demand from occupiers and would require minimal public-sector subsidy. It points out that the existing Three Graces are big, well-let office buildings and that the sector could do with more of the same. Meanwhile, insiders suggest that the museum plan is damaging the NWDA’s marketing exercise. An exasperated source close to the NWDA says: “Every time the museum idea is mentioned, it turns off the kind of serious developers they want to get interested in the Fourth Grace. Development is being hindered by this kind of talk.” Hard words are said to have been exchanged in meetings between the city council and the NWDA. Aidan Manley, area manager for Merseyside at the NWDA, plays down the idea of a dispute, however. “The Fourth Grace site is large enough for us to have both offices and culture. Let’s not be prescriptive. There is a danger that, if we go for just one use, we could miss out on a fantastic mixed-use development,” he says. While the battle rages on, property people are wisely keeping their distance. Some think that, given the enormous purchase price, only a residential development can pay. Some like the idea of a museum. Mason Owen partner Chris Connor says: “Given the location, it would have to be something special. I’d like to see something cultural, a real statement building.” Others take a more pragmatic view. Andrew Nichols at Dixon Webb, which advised the NWDA on the purchase of the Mann Island site, says: “Offices is just one potential idea for the Fourth Grace. There may be a commercial element; there may be a public element. There’s a need for quality office space in the city and a statement building on the waterfront would be a tourist attraction.” City-centre secondhand office rents Prices have moved forward in the past five years Year Rent (£ per sq ft) 1998 9 1999 9.50 2000 10.50 2001 11.50 2002 12 Based on good-quality non air-conditioned secondhand accommodation Source: Irving Rice & Partners Development schedule: new offices more than 2,000m2 Despite a number of controversial developments, several schemes are being prepared for construction over the next few years Scheme Size (m2) Rent (£ per m2) Developer Status Agent(s) Campbell Square, Duke Street 2,973 135 Beetham Equities Completed January Mason Owen & Partners/ Keppie Massie Building 12, Princes Dock 8,831 177 Princes Dock Development Co Under construction. Due for completion January 2003 GVA Grimley/ Irving Rice & Partners City Square, Moorfields 13,201 162 Teesland Group Shepherd Development Construction will commence on completion of part prelet, expected soon Mason Owen & Partners/ Insignia Richard Ellis 101 Old Hall Street 13,006 162 Beetham Organisation Construction subject to part prelet, expected shortly Keppie Massie The Sentinel, Chapel Street 13,192 205 Rumford Investments Construction expected to start during 2003, although part prelet will be required Hitchcock Wright &Partners/ DTZ 5 Temple Square, Dale Street 4,180 162 Villagate Developments Full planning application granted. Proposed start this winter CB Hillier Parker/ Irving Rice & Partners Phase two, Stephenson Way, Wavertree Technology Park, Wavertree 3,344 135 Delma Developments Phase one let in February. Construction of phase two to commence January 2003 Insignia Richard Ellis/ Irving Rice & Partners Plot G, Estuary Commerce Park, Speke 4,645 135 Intercity JIS/MEPC/Garston Full planning application granted. Construction expected imminently King Sturge/ Insignia Richard Ellis Phase two, Kings Business Park, 2,787 135 Hazels Development Co Proposed start early 2003 Keppie Massie/Knowsley Dunlop Heywood Riverside Plaza, Columbus Quay, South Liverpool 2,787 135 Caber Construction Planning application to be submitted. Part prelet needed to start construction Hitchcock Wright & Partners Regatta Place, Brunswick Business Park, South Liverpool 2,620 135 North West Industrial Estates Detailed planning consent granted. Will require30% prelet to commence construction Mason & Partners / Keppie Massie Source: Irving Rice & Partners