In the first of a new series of conversations with office property’s top people, Hines‘ Managing Director, Raj Rajput, tells it straight: office refurbishment is all about keeping rents up, especially if the competition is getting serious. David Thame reports.
It is a long way from Texas to Birmingham, but for Raj Rajput the connection is obvious. Hines, the Texas-based property empire, is rethinking its Birmingham portfolio. And there are lessons there for everyone, says Raj, Managing Director and Head of UK Asset Management.
Hines’ portfolio, which includes 10 West end and City office blocks, as many more in West London, and another half dozen in the regions, is facing a common problem. And that is time. Sooner or later time outruns us all, and it outruns office buildings faster than most things. Today’s funky office space is very rapidly transformed into tomorrow’s unsustainable wellbeing-damaging hulk, and even the best floorspace has to race to keep up with occupier trends.
So what to do about a 20-year-old office block? Raj says the answer is, to be honest, rethink and refurbish. The task of rethinking the 550,000 sq ft Brindleyplace estate in Birmingham begins with the 36,000 sq ft Oozells Building.
It comes ahead of a series of lease breaks and renewals, which will mean around 140,000 sq ft at Brindleyplace has its occupation in doubt.
‘We have been talking to occupiers about how to reposition Brindleyplace, thinking not of some conventional refurbishment, but of something that will stand out,’ says Raj.
“Today’s funky office space is very rapidly transformed into tomorrow’s unsustainable wellbeing-damaging hulk”
‘There’s a lot of talk about wellbeing and amenity, which we obviously need, but the repositioning needs thinking through. We mustn’t be formulaic.’
At the Oozells Building, the answer has been a series of carefully targeted interventions and, just as important, decisions to hold back.
‘We looked at the reception area on the ground floor, which was a good, reasonable size but it had a whopping staircase on one side, using up about one-third of the space. So we spoke to the tenant, whose office was at the top of the staircase, and we moved it out of the reception area, to create a nice open seating space,’ Raj says.
Hines also decided to take advantage of the office’s proximity to Birmingham’s musical landmarks, like the Conservatoire and Symphony Hall. ‘We’ve created a green room, based on Birmingham’s musical history. So it’s a quirkier kind of breakout space. We’ve put amps in the wall so you can plug your phone into loudspeakers and play music. Obviously you can’t play it too loud,’ he says, adding that it provides a different pace and a new atmosphere, which tenants can explore.
In all, it amounts to what Raj calls a ‘softening of the edges.’ But the Hines boss also insists that some things are best omitted, and that not every landlord needs to include them as a reflex.
‘We thought long and hard about putting a mini gym into the building, but there wasn’t enough space to do it properly and we realised there are plenty of gyms in the area, and if anyone wanted a gym they would go to one of those,’ he says.
And here comes the bottom line. This £4m series of improvements and re-thinks is going to protect Hines’ rental income at a time when it is likely to come under severe pressure.
‘We’ve a lot of lease events to manage out, and we have to keep Brindleyplace relevant in the light of big new speculative office developments in the city, like Hermes’ Paradise Circus and Ballymore’s Snowhill. We’re conscious that Brindleyplace is 20 years old and maybe the image is a bit staid and corporate,’ he says.
‘Today our rents are in the late 20s – £28-29 a sq ft – and our aim is to move it beyond £30 a sq ft, because rivals like Snowhuill and Paradise Circus are already quoting £33-34 a sq ft. We like to think a gap of a few pounds between a really good refurbishment like ours, and new build, is about right,’ he says.
The Hines calculation was based on the idea that the pipeline of new office development ran dry after the completion of Snowhill and Paradise, putting Brindleyplace refurbs in a strong position.
The announcement that Tristan Capital Partners is now funding the 224,000 sq ft, 26-storey office tower at 106 Colmore Row, slightly alters the sums. The 106 Colmore Row block will be completed in the first half of 2021.
Hines have to take a gamble: the £4m punt on the Oozells Building is relatively small in the context of their £90 billion overall portfolio under management. But it will surely feel like a big gamble if it doesn’t pay off by keeping rental levels up.