Jestico + Whiles completes key new learning centre for the University of Cambridge
A new building that offers co-working and social spaces, the West Hub marks the start of the transformation of the West Cambridge Site into a centre for innovation.
Here’s a promise about 2022: it won’t be like last year. A heady combination of investors in a panic to spend, consumers with savings to spend, lockdown exhaustion and Keynesian animal spirits will power the property market in 2022.
Even inflation won’t dent the party feel – though it might in 2023.
How do we know all this? Mix has spoken to the brightest, wealthiest and best in the world of office property, build-to-rent and hospitality, and these are their tips for the coming year.
The moment professionals feel sufficiently confident to return to the office lettings market, is the moment the new normal gives way to the old normal. Law firm Shoosmiths chose the start of the new year to reveal a long-mulled 32,900 sq ft letting at the 103 Colmore Row office scheme, Birmingham’s primest of prime office addresses. The firm has signed a 15-year lease with developers Sterling Property Ventures and Tristan Capital Partners. Shoosmiths wanted a bit of wow, and they got it by taking the 20th floor (of 26) as well as two in the less ritzy zone of floors 11 and 12.
Shoosmiths are joining a string of other professionals including Grant Thornton, wealth management and financial advisers, Tilney Smith & Williamson. Letting 60% of the building before construction work was completed, it is further proof that the old normal is back in town. Shoosmiths say they will pick a local firm to advise on the fit out.
Every day brings new data showing the staggering volume of money looking for a home in UK real estate. Yes, warehousing is grabbing the largest slice and yes, traditional retail is at the bottom of the pecking order, with leisure assets stuck in the middle. But the volumes involved are so sufficiently vast to make a real difference to Mix readers’ world in 2022.
For instance, South East office investment hit a record £4 billion in 2021, with growth in the life science sector the (unsurprising) cause of much of the growth. Overseas money helped the region beat the £1.93 billion invested in 2020, and was double the 10-year average. Long story short: lots and lots of money.
It is worth noting that during 2021 as much as £1.5 billion was invested into offices in the Golden Triangle (Oxford, London and Cambridge), led mainly by global private equity houses looking for a slice of life-science action.
The final quarter saw £1.54 billion invested, a stonking performance as UK funds spotted an opportunity to sell, and international buyers grabbed their chance to diversify. This frantic activity was underpinned by a wave of tenant signings – 2.6 million sq ft were let in 2021, up 24% on 2020. About one-third was in the tech, media and technology sector, and 54% was on out of town business parks. The M4 corridor was the hottest spot of all.
What inspires investors is: good take-up, and low-ish vacancy rates (meaning landlords have the upper hand), and good prospects for multi-let office blocks. But they are buoyed by a growing body of data showing that the UK office market has almost recovered from the pandemic. A strong December 2021 – and a strong Q4 overall – pushed annual capital growth in the office market to 4.3%, the strongest annual performance since 2017. Total returns crept up to 9%, said the data from CBRE.
Lockdown One was dominated by speculation that city centres were finished. Instead of putting all their office space and all their risk into central business districts, the big corporate occupiers would instead disperse their office needs, spreading the love between a small city hub and suburban outposts. The ‘city is dead’ stuff was always bonkers and the hub-and-spoke model is an expensive fad for a handful of faddish occupiers. Essentially, you can forget it. But the chatter re-awakened interest in the prospects for office parks, some of which had been under-valued and, as a result, suffered under-investment. Their spiral of decline could now be at an end.
A big straw in the wind came from Kennedy Wilson, the hyperactive investor developer based in Beverley Hills and fuelled by Californian capital. It acquired the 225,000 sq ft Forum office campus, part of the 1m sq ft Solent Business Park on the Hampshire coast. The price was $81m (£61m) and the tenant list is dominated by corporates such as HSBC and Specsavers. With an average of just 4.2 years left on their leases, there’s scope for Kennedy Wilson to tempt them to stay or refurbish at higher rents. There’s another 11-acres next door waiting for redevelopment. In short, Kennedy Wilson reckons good-quality office parks are a money spinner.
The build-to-rent residential sector was a surprising success during the COVID pandemic. The Alpha variant – city centre flats – is now being supplemented by other powerful variants, including co-living, senior living, single family housing (e.g. rented houses) and the increasingly favoured world of low-cost housing and hostels.
The rate of construction of regional BTR homes grew 27% in 2021, albeit from a low base: will this be the year the sector breaches the 200,000 units barrier and shows it has real strength?
Well, let’s wait and see. Overall British Property Federation/Savills figures show total construction output barely moving – up 8%. With just 141,000 units under construction the claim that BTR can help solve the housing crisis seems laughably ambitious. The rate of output has to go up.
There’s also a big question mark hanging over co-living. Planners in Birmingham and Liverpool are pondering the format and do not appear to be impressed. Their concern is that even the larger studio style bedspaces do not meet national standards, which require studios to be at least 398 sq ft. They worry that they are creating glorified student housing, or worse still, over-priced houses in multiple occupation. Until the co-living developers can come up with some more convincing evidence, or an improved format, the future of this slice of BTR remains in doubt.
Could a doubling of the pace of office redevelopment be one of the side effects of a dash to meet global emissions standards? Research from JLL suggests the replacement rate of UK offices – one way of measuring the amount of repurposing and redevelopment – needs to more than double to around 5% of the office stock. The report also shows how increasing pressure from major office occupiers who have adopted so-called ‘science-based targets’ for the sustainability standards, will push developers towards more refurbishment and office redevelopment.
Pressure for more refurbishment to meet green standards is now growing, thanks to larger numbers of regional office occupiers who have signed up for so-called science-based targets. The footprint of occupiers signed up to these kind of targets is now 4.4 million sq ft, more than three times the total as recently as 2018. Over a quarter of this space has a lease expiry in the next five years, which opens the doors to 1 million sq ft of green refurbs.
This is the tip of a big green iceberg because the eight major UK regional cities have between them only around 20 million sq ft of top rated green floorspace. Developers are leaping in to fill the gap. Bruntwood has just announced a deep green refurbishment of Altrincham’s former Rackhams department store, now to become a 46,000 sq ft office scheme, and every regional city is seeing similar initiatives.
Words: David Thame
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