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Some of the biggest names in office property are barely known outside their immediate circle of clients and customers. They do not indulge in ostentatious branding. They prefer the background. One of those is Oxford Properties. David Thame reports.
Yet, for all its discretion, Oxford Properties is one of truly a giant of global property. The Toronto-based enterprise is the property investment arm of OMERS, the pension fund for Ontario’s local government workers, and they own 100 million sq ft of the best real estate in the world’s best locations. Its £77 billion global portfolio includes London’s 50 New Bond Street (office tenants include Ralph Lauren), the 320,000 sq ft Mid-Town Post building at Holborn, the Royal Exchange in the City, and a host of high value assets in the best postcodes.
Henry Shearer is Head of UK at Oxford Properties. The way he sees the market matters. And what does Shearer see?
The answer is an ever-more complicated office market, requiring ever more nuanced responses from developers and landlords. Above all, Shearer sees a property market where connectivity, not location, is king, and where the human resources department has as much influence on an occupier’s choice of premises as the finance director.
The analysis boils down to a conviction that tenants want good buildings, not just good addresses, and that smart landlords and developers will understand that brand alignment is more important than ever.
Occupiers are more demanding than ever, which we think is a good thing because we think we’ve the right skills to deliver what they want.
‘Talking to our customers, we’re seeing a continual shift in decision-making in real estate towards thinking more about how they recruit and retain talent. The human resources department now has a seat at the table, and everybody at the table is thinking about what a building says about their brand to customers, clients and the talent they want to recruit,’ he says, adding that occupiers ‘want space that talks about their business’.
Focusing on brand identity raises the enormous headache that what plays well with one brand, plays extremely badly with another.
‘Brand alignment around their building choices is very important, but the opportunity for us to deliver a product that accomplishes that is a challenge simply because some occupiers will find what you do perfect, while others won’t.’
Henry points to the Post Building near the British Museum in London’s Midtown. The 260,000 sq ft former Royal Mail sorting office for the WC postal districts has floorplates of around an acre. Ceiling heights are a breezy five metres and the volume of space is awesome. All of this is amazing, but not everybody’s cup of tea, and the kind of occupiers for whom it is the ideal home turn out to be a very mixed bunch (see ‘Post Haste’ below).
Henry draws the conclusion that occupiers don’t just want buildings to look different, they want them to work differently. ‘The challenge is that whatever we do just won’t work for some occupiers. So we have to accept that the pool of potential tenants for each building is narrower, but balance against that the greater appeal a building will have to that type of occupier,’ he says.
The corollary of the heightened interest in branding comes a little more flexibly when it comes to location. Providing the connectivity is good – trains, plans, WiFi – occupiers will take a broader view of where they locate. The days when occupational choices for some firms were limited to a few streets in Mayfair, or a few in the City, are long gone.
‘The address is no longer such a significant decision-maker,’ says Henry.
In the meantime, Oxford, like many landlords and developers, is focusing on being a consumer-driven business – still a revolutionary idea in the staid, hierarchical world of property.
‘We work very hard to build collaborative relationships with our customers,’ says Henry. ‘Occupiers are more demanding than ever, which we think is a good thing because we think we’ve the right skills to deliver what they want. There is a clear shift towards higher expectations on buildings and the amenities they offer.’
So how do developers/investors like Oxford respond to this shifting, kaleidoscopic marketplace? The answer seems to be to hedge your bets with a portfolio that includes a little of everything and, if possible, the best in class. And when you buy or build, do it big.
‘We’d like some new buildings and some existing buildings to work with – large floorplates matter because they ensure flexibility,’ he says. ‘We’ve been very successful in our central London developments, and now we want to refill our development pipeline. But there are limited opportunities in central London.’
Each location also needs to be judged against its capacity to make a big enough splash, because Oxford want to be able to set (rather than follow) the trend in their chosen sub-markets.
‘Globally, we like to focus on scale, and the best in each location, and that way we get to control the environment around our buildings, because that context is what drives the way our customers think,’ Henry says.
‘It’s around creating an environment with amenities that work for our buildings, and one of the challenges in London is that buildings in the city are generally quite small compared to other global cities. And you need scale to make amenities work at the right level. A 1 million sq ft building is rare in London, although common in other global cities.
Globally, we like to focus on scale, and the best in each location, and that way we get to control the environment around our buildings, because that context is what drives the way our customers think.
‘All of which means it often doesn’t make sense to deliver amenities in the building itself, and you have to look for them in the neighbourhood. That kind of thinking is a bit of a consideration for occupiers and also for players like us,’ he explains.
Paired with the where-to-build question is the issue of viability, and this depends on office rental expectations. Here, Oxford’s house view is that London rents will continue on their steep upward path.
‘Markets are very constrained, occupiers are struggling to find the large floorplates they want, the development pipeline is also constrained, but occupiers are still moving because, in many cases, they have to because old buildings no longer work for them, or because they are growing. I think the London office market is still well positioned for growth, but it all comes down to the product you offer.’
Oxford are global players with the muscle to make things happen. What they (discretely) say sets the tone. And the tone is clear: learn to love your office property customers, even if they are more changeable than ever.
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