News that Chinese telecoms giant Huawei has taken space at Green Park in Reading highlights China’s ascendancy in the global telecoms market. It also carries a biting irony.
Huawei, now the second biggest supplier of telecoms network equipment in the world after Ericsson, has taken space previously let to its most acrimonious rival, Cisco, and for which Cisco is effectively still paying.
The building Huawei is taking is one of five amounting to more than 500,000 sq ft, on which Cisco took 12-year leases in 2002 just as the dotcom bubble burst, forcing the US telecoms company into drastic retrenchment. Cisco has never occupied the buildings but could not break the leases. It had been trying, but failing, to sublet them for a decade.
In July last year, Cisco sold the leases to Oxford Properties, Green Park’s new owner, in a deal that included a substantial chunk of the remaining liabilities. Less than three months later, Oxford announced that Huawei was moving in.
Rivalry
The rivalry between Cisco and Huawei dates from 2003, when Cisco sued Huawei for allegedly copying source codes. Although the two companies settled out of court, the battle reignited last year, with Cisco effectively claiming the court had ruled in its favour.
Meanwhile, Huawei is at the centre of a trade feud between the US and China. A US Congress report last year accused Huawei and another big Chinese telecoms company, ZTE, of posing a threat to US security. Critics of the report, including the Washington Post, say the claims were fired by protectionist sentiment and that many originated in a dossier from Cisco.
Because of the obstacles it faces in the US, Huawei has a limited presence there but it is growing rapidly in Europe, where sales rose by 26% last year and accounted for some 12% of the Chinese giant’s revenue. The company now conducts 70% of its business outside China and has pledged to invest £1.3bn in the UK.
Its clients include BT, which selected Huawei over Marconi to supply the materials for its copper broadband upgrade in 2005, contributing to Marconi’s demise.
It is evidence of the huge steps China has made in the global technology and telecoms markets, and where Huawei has led, other Chinese companies are expected to follow. Huawei and fellow Chinese telecoms company ZTE are both making an impact on the global mobile handset market, while another Chinese company, Lenovo, last year leapfrogged Hewlett Packard to become the world’s biggest vendor of PCs, according to US research consultant Gartner.
The negotiations for Huawei to move to Green Park were well advanced when Oxford struck the deal to take back the leases from Cisco.
“The deals weren’t contingent on one another, but Huawei clearly influenced the decision to take the leases from Cisco,” says Rory Carson, Oxford Properties’ Asset Manager at Green Park.
Huawei’s lease of 140,000 sq ft at Green Park is over 10 years with a five-year break, six months rent-free and a further 12 months rent-free if it does not exercise the break, although there would be a penalty for breaking.
At £22.75 per sq ft, the rent is significantly below Reading’s grade A rents of around £30 per sq ft and the £32.50 set under the Cisco leases. For Oxford Properties, the discount is of little significance, since Cisco has already paid part of the rent.
Vital precedent
More importantly, Huawei may have set a vital precedent for Green Park and the Thames Valley by putting it on the radar of China’s fast growing and increasingly outward-looking telecoms and technology companies.
Carson says Oxford has a lease proposal out to another Chinese company that is interested in taking space at Green Park precisely because Huawei is there. Although this would be a relatively small deal, Oxford believes it could herald a Chinese migration into the Thames Valley.
Oxford’s head of asset management, Chris Carter Keall, credits DTZ with helping to land the Huawei deal, thanks to its dedicated China desk, which helped the parties navigate their way through cultural barriers.
“The first deal is always the hardest. Now we have done one, we have a better understanding and the next ones will be easier,” says Carter Keall.
He believes Huawei, which moved from 40,000 sq ft in Basingstoke, will continue its expansion at Green Park. He says the company has filled its existing building, bringing in 900 employees instead of the 700 it originally anticipated, and was attracted to Green Park because of the scope for expansion. In addition to the existing Cisco buildings, Oxford has 1m sq ft of space still to develop.
Meanwhile, Huawei and Cisco will be neighbours at Green Park, where Cisco has retained 100,000 sq ft of space. Hopefully the rivalry will be confined to the sports centre.
Silicon Roundabout: partner, not threat
Mentioning London’s Silicon Roundabout in the Thames Valley elicits sneers of derision. There is plain resentment, and some anxiety, that an already thriving sector in London is getting help from the government, potentially at the expense of Britain’s answer to Silicon Valley.
Nokia’s move last year from the Thames Valley to London fuelled the fears. But there is a clear differentiation between the two locations and, far from detracting from the Thames Valley, a robust Silicon Roundabout could help to strengthen its position.
Silicon Roundabout grew up in an area of cheap accommodation, attracting an inventive, design-led community. Its business is all about the creative energy of the mostly 20-somethings who want the buzz of city life. While Silicon Roundabout is populated with energetic start-ups creating computer games and clever networking facilities, the hardware and software is developed in the Thames Valley.
Big tech companies may want a creative toe in London, but agents believe the Thames Valley will remain the location for large-scale operations requiring a more mature workforce that wants gardens and good schools.
“People in the Thames Valley want to get in the car and drive to the business park, they don’t want to get on the train to travel into London. I don’t see that changing,” says Steve Lang of Savills.
Microsoft is an example. The US giant recently opened a London office for its Xbox division, but it had confirmed its commitment to Thames Valley Park, where it employs 2,000 people, by declining to exercise a lease break, albeit using the opportunity to reduce the rent. Nokia’s move to London was not so much a rejection of the Thames Valley as a sign of the Japanese firm’s financial difficulties: it was downsizing, shedding 10,000 staff globally.
A look at recent deals demonstrates the pattern. Leases of more than 100,000 sq ft accounted for 41.8% of the space let in Reading in 2012, up from a five-year average of 32.9%, according to figures from Savills. A further 19% was in the 30,000-40,000 sq ft range.
In central London, just 4% of space let in 2012 was in deals of more than 100,000 sq ft, while 55% was in units of less than 25,000 sq ft, according to Jones Lang LaSalle.
