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Estates Gazette

Maison Kayser fires up first UK bakery in London

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Maison Kayser fires up first UK bakery in London

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Estates Gazette

Yau takes Turkish concept to Bayswater

By Amber Rolt | Leisure | 10-06-2016 | 7:00

Restaurateur Alan Yau is opening a second site for his Turkish pizza restaurant Babaji, at the Bishop’s Quarter development in Bayswater, W2.

Babaji, which serves pide – a Turkish-style pizza – first opened in London last year on Shaftesbury Avenue, W1, and is looking to expand across the capital, opening two to three sites a year in central locations.

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It has signed for a 4,500 sq ft site on a 20-year lease at the new retail and leisure quarter, which is being developed by BMO Global Asset Management.

Artistan deli Ambrosia has also signed up, taking a 2,045 sq ft unit on a 10-year lease and bringing the scheme to full capacity.

Quoting rents at Bishop’s Quarter are £50 per sq ft.

Savills acted for BMO; DeVono advised Babaji and Ambrosia.

• To send feedback, e-mail amber.rolt@estatesgazette.com or tweet @AmberRoltEG or @estatesgazett

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Estates Gazette

RICS to take action on agent conflicts

The Royal Institute of Chartered Surveyors is to take action on tackling potential conflicts of interest in the property industry when agents advise on both sides of a transaction.

It is in the process of reviewing its regulations on the issue.
The regulatory body has been prompted into broaching the thorny subject by growing evidence of the scale of potential conflict as the agency world continues to consolidate.

The University of Leeds announced it had launched a research project earlier this summer on conflicts of interest in commercial property.

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More than 1.2m sq ft of office lettings in central London last year involved agents which represented both the landlord and the prospective tenant, an analysis by the university and tenant representation specialist DeVono found.

The review of RICS policy is expected to include investment advisory work and tenant and landlord representation.

The RICS has recently updated guidance on its website about conflicts of interest, clarifying that they may occur when "advising both the seller and buyer of a single commercial property" as an example.

A RICS spokesman said: "RICS is reviewing its regulations around conflict of interest and we are expecting to make an announcement in the coming weeks".

DeVono managing director Adam Landau said the review was "long overdue".

He added: "It is about time that the RICS dealt with this issue. Occupiers have effectively been second-rate citizens and they are the ones that suffer as a result of this double-dipping.
RICS has lost control of it".

The Investment Property Forum last year published its own guidance on conflicts of interest which, while widely endorsed by agents, is non-binding. Should the RICS guidance be updated in the Red Book it would become compulsory for members.

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Estates Gazette

Ad Men Take First Space at Kingly Street

Shaftesbury has signed its first office tenant at 25 Kingly Street, W1, a month after launching.

Digital advertising firm Ocean Outdoor, which created the IMAX's wraparound advertising screen, will take a 3,700 sq ft floor.

It comes after Shaftesbury inked a 7,000 sq ft deal with Dishoom last week to open a
restaurant at the site. The mixed-use scheme also includes 7,500 sq ft of retail space, 7,000 sq ft of further office space and 12 flats.

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Ocean Outdoor is moving out of 20 St James's Street, SW1, paying £60 per sq ft on a 10-year lease.

CBRE and Colliers International advised Shaftesbury; DeVono acted for Ocean Outdoor.

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Estates Gazette

Twitter feeds London space race

Social media giant Twitter and online fashion retailer Asos have launched requirements totalling more than 350,000 sq ft as London continues to benefit from the booming digital economy.

Both firms have begun scouting options for new HQs in the capital despite acquiring space only in the past couple of years, reflecting their rapid expansion.

California-based Twitter has instructed DeVono Property to source up to 150,000 sq ft in the West End.

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It occupies just over 50,000 sq ft at the Crown Estate’s AirW1, off Regent Street, which it acquired in two phases in 2012 and 2014.

The company would prefer to expand within the building.
However, it is also considering options nearby for either expansion space or a wholesale move should expansion within Air W1 prove unworkable.

Asos has handed Crossland Otter Hunt a similar instruction that could lead to a prelet of as much as 200,000 sq ft.

It occupies around 130,000 sq ft at Lazari’s Greater London House, NW1, having expanded in the building in phases from 2007.

The online retailer remains interested in further expansion at Greater London House, where it has invested in a high-tech fit-out. However, it is also considering a number of alternative options that would likely involve a prelet.

Asos's revenues increased by 14% in the six months to 28 February, while Twitter’s latest results include a revenue hike of 74% for the 12 months to 28 April.


According to Cushman & Wakefield, media and tech firms accounted for 28% of leasing activity in central London, above banking and finance’s 22%.

 

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Estates Gazette

Sublet proves good economics for UBM

United Business Media has agreed to sublease space at 240 Blackfriars Road, SE1, to political consultancy Adam Smith International and Red Ant Fashion at a 35% premium to its 2011 prelet.
Adam Smith International which was founded in 1992 and has links to the influential economic think tank Adam Smith Institute will occupy 12,000 sq ft on the 14th floor.
It has agreed a rent of £60 per sq ft.
Red Ant will occupy 6,000 sq ft on the 11th floor, paying £64 per sq ft.
Both deals represent a significant premium on the £47 per sq ft rent which United Business Media agreed when it prelet 105,648 sq ft in the top nine floors of the building in 2011.
The events company has now sublet a total of 41,000 sq ft at the office block.
Developed by Great Portland Estates on behalf of the Great Ropemaker Partnership, 240 Blackfriars Road now has 23,884 sq ft left available on the seventh and eighth floors.
Great Portland Estates completed the 19-storey, Allford Hall Monaghan Morris-designed block in 2014.
Colliers International advised United Business Media, while DeVono Property acted for Adam Smith International.

United Business Media has agreed to sublease space at 240 Blackfriars Road, SE1, to political consultancy Adam Smith International and Red Ant Fashion at a 35% premium to its 2011 prelet.

Adam Smith International which was founded in 1992 and has links to the influential economic think tank Adam Smith Institute will occupy 12,000 sq ft on the 14th floor.

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It has agreed a rent of £60 per sq ft.

Red Ant will occupy 6,000 sq ft on the 11th floor, paying £64 per sq ft.

Both deals represent a significant premium on the £47 per sq ft rent which United Business Media agreed when it prelet 105,648 sq ft in the top nine floors of the building in 2011.

The events company has now sublet a total of 41,000 sq ft at the office block.

Developed by Great Portland Estates on behalf of the Great Ropemaker Partnership, 240 Blackfriars Road now has 23,884 sq ft left available on the seventh and eighth floors.

Great Portland Estates completed the 19-storey, Allford Hall Monaghan Morris-designed block in 2014.

Colliers International advised United Business Media, while DeVono Property acted for Adam Smith International.

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Estates Gazette

Office leases: best guess wins

By Helen Hamilton 

London occupiers are engaged in a game of pin the tail on the donkey, having to make blind guesses at rental values as they battle to secure space in sought-after locations.

The process is sealed bidding with offices in extremely short supply in the niche markets of Mayfair and St James’s and the City Fringe.

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“While best bids and gazumping are not uncommon in the investment and residential markets, I have seen nothing like this in the 15 years I have worked as an agent,” says Shaun Simons of Hatton Real Estate, which operates in the City fringe.

Simons says that of 37 office lettings Hatton handled in Q1, 20 went to best bids. One property was viewed by 14 potential occupiers on the day it became available. Eight viewers made offers and a deal was initially agreed at £5 per sq ft above the asking rent, but then another occupier secured the space with a bid £5 per sq ft above that.

“The final deal reflected a rent of 20% above that initially expected,” says Simons.

Caroline Pontifex of KKS Strategy reports a similar feeding frenzy in Mayfair and St James’s, where prestige properties are increasingly hard to find.

“It’s the smaller occupiers looking for really premium space and also the occupiers looking for big space, because there really isn’t any,” says Pontifex.

The office space shortage stems from an almost complete lack of speculative development during the recession and has been exacerbated by changes in the empty business rates regulations and office uses losing out to red hot investment values.

“There is a massive imbalance between supply and demand,” says Michael Pain of Carter Jonas, who says King’s Cross, NW1, is another location where there is no longer any space, following the letting of the last tranche of 2 Pancras Square, NW1, to Vistaprint.

The situation has left tenants with two choices: pay up or choose another location. For some businesses, location is all and their only option is to pay a premium for the space they want.

“The hedge funds, for example, want to be in Mayfair, a part of town that isn’t set up for their kind of business,” says Pontifex. What they want is the prestige top floor space, ideally with a veranda – an elusive combination, she says.

For the TMT sector, the City fringes are the must-have location. Here one tech company, which doesn’t wish to be identified, says it bid £5 per sq ft over the asking rent for the property it wanted in EC1 and still failed to secure it.

But while some occupiers are paying up, others have chosen to relocate.

Planning consultants Turley Associates relocated from Savile Row, W1, to Tottenham Court Road, W1, making a substantial saving on rent, but still remaining close enough to the West End to serve its client base and keep staff happy, Pain says.

And the World Association of Nuclear Operators went further: The association was relocating from Wigmore Street, W1, to reduce overheads and initially looked at Victoria, SW1, and Westminster, W1.

“But the quality of the buildings was appalling. They would have been moving downmarket,” says Pain.

So Carter Jonas directed WANO to Docklands, where it found the quality of space at the price it wanted at 25 Canada Square, E14. The rent at Canada Square is in the region of £35 per sq ft, below the rents now prevailing in the City and below those WANO would have paid on Wigmore Street.

“For tenants who want good grade-A space at less than £40 per sq ft, the only places are E1 and E14,” says Pain.

Rents and incentives

The shortage of demand has forced rents upwards but not as much as some would expect. And while incentives are reducing, they remain more generous than those seen before the recession.

Prime West End office rents have risen by between 5% and 9% since Q1 2013 to £100-£120 per sq ft. In the City, prime rents are up 4.6% to £55-£59 per sq ft, according to Carter Jonas. It was the northern City fringe of Farringdon, Clerkenwell, and Shoreditch that recorded the highest level of rental growth of between 13.3% and 15.8% in 2013.

“Since the second quarter of last year, quoting rents have gone up by £2 to £4 per sq ft, depending on the location and quality of build, and rent-frees, which would have been 12 months on a five-year lease until Q3 of last year, are now typically nine to 11 months,” says Pain.

The reduction in rent-free periods may seem meagre, but these compare with 15 to 18 months on a five year lease in 2009.

And rental discounts are still available too. Carter Jonas says discounts on landlords’ quoting rents are now typically 2.5%-5% in the West End and South Bank and 2.5%-7.5% in the city.

Tech bubble

The TMT sector has been the London miracle of recent years, buoying the capital above the recession that swamped the rest of the country.

The sector made up 18% of all central London lettings in the first quarter of 2014. But now industry analysts are warning of a new tech bubble that will at some point burst.
The doomsayers include US hedge funder manager David Einhorn, which foresaw the collapse of Lehman Brothers. It points to the huge amount of funding that has poured into the sector and the frenzy of multimillion-dollar acquisitions, such as Facebook’s $19bn (£11bn) acquisition of WhatsApp earlier this year.

While not all analysts agree that the tech sector is overvalued, one points out: “We don’t know we are in a bubble until it bursts.”

From the London property sector’s point of view, the collapse of TMT companies could bring benefits, according to Adam Landau of DeVono: “A dotcom bubble could provide extra office stock. This would free up some occupied buildings in the fringe areas of central London. If we see a tech crash, this will help free up some overpriced commercial space.”

It isn’t only high rents that are driving occupiers’ decisions on where to locate. Rapid rises in business rates have created an even deeper gulf between high- and low-cost areas.

The increase has been most dramatic in the West End, where the top business rates soared from £22.50 to £50 per sq ft between 2009 and 2014, according to Carter Jonas. In the City the increase was a mere £2.75 per sq ft to £22.50, offering a huge saving for occupiers relocating from west to east.

The increases stem from the 2010 business rates revaluation, which was based on the peak rental values of 2008, combined with annual uniform business rate multipliers linked to above-target inflation.

GVA has described ever-rising business rates as a “time bomb” and is calling on the government to stick to its original timetable for a rates revaluation in 2015. The government intends to postpone the revaluation until 2017.

“With the increasing burden of business rates on occupiers, the decision to postpone the 2015 revaluation is hard to justify. It represents a missed opportunity to ensure a fairer distribution of the tax,” GVA says in its report The business rates time bomb.

Business rates

It isn’t only high rents that are driving occupiers’ decisions on where to locate. Rapid rises in business rates have created an even deeper gulf between high- and low-cost areas.

The increase has been most dramatic in the West End, where the top business rates soared from £22.50 to £50 per sq ft between 2009 and 2014, according to Carter Jonas. In the City the increase was a mere £2.75 per sq ft to £22.50, offering a huge saving for occupiers relocating from west to east.

The increases stem from the 2010 business rates revaluation, which was based on the peak rental values of 2008, combined with annual uniform business rate multipliers linked to above-target inflation.

GVA has described ever-rising business rates as a “time bomb” and is calling on the government to stick to its original timetable for a rates revaluation in 2015. The government intends to postpone the revaluation until 2017.

“With the increasing burden of business rates on occupiers, the decision to postpone the 2015 revaluation is hard to justify. It represents a missed opportunity to ensure a fairer distribution of the tax,” GVA says in its report The business rates time bomb.

By Helen Hamilton 
London occupiers are engaged in a game of pin the tail on the donkey, having to make blind guesses at rental values as they battle to secure space in sought-after locations.
The process is sealed bidding with offices in extremely short supply in the niche markets of Mayfair and St James’s and the City Fringe.
“While best bids and gazumping are not uncommon in the investment and residential markets, I have seen nothing like this in the 15 years I have worked as an agent,” says Shaun Simons of Hatton Real Estate, which operates in the City fringe.
Simons says that of 37 office lettings Hatton handled in Q1, 20 went to best bids. One property was viewed by 14 potential occupiers on the day it became available. Eight viewers made offers and a deal was initially agreed at £5 per sq ft above the asking rent, but then another occupier secured the space with a bid £5 per sq ft above that.
“The final deal reflected a rent of 20% above that initially expected,” says Simons.
Caroline Pontifex of KKS Strategy reports a similar feeding frenzy in Mayfair and St James’s, where prestige properties are increasingly hard to find.
“It’s the smaller occupiers looking for really premium space and also the occupiers looking for big space, because there really isn’t any,” says Pontifex.
The office space shortage stems from an almost complete lack of speculative development during the recession and has been exacerbated by changes in the empty business rates regulations and office uses losing out to red hot investment values.
“There is a massive imbalance between supply and demand,” says Michael Pain of Carter Jonas, who says King’s Cross, NW1, is another location where there is no longer any space, following the letting of the last tranche of 2 Pancras Square, NW1, to Vistaprint.
The situation has left tenants with two choices: pay up or choose another location. For some businesses, location is all and their only option is to pay a premium for the space they want.
“The hedge funds, for example, want to be in Mayfair, a part of town that isn’t set up for their kind of business,” says Pontifex. What they want is the prestige top floor space, ideally with a veranda – an elusive combination, she says.
For the TMT sector, the City fringes are the must-have location. Here one tech company, which doesn’t wish to be identified, says it bid £5 per sq ft over the asking rent for the property it wanted in EC1 and still failed to secure it.
But while some occupiers are paying up, others have chosen to relocate.
Planning consultants Turley Associates relocated from Savile Row, W1, to Tottenham Court Road, W1, making a substantial saving on rent, but still remaining close enough to the West End to serve its client base and keep staff happy, Pain says.
And the World Association of Nuclear Operators went further: The association was relocating from Wigmore Street, W1, to reduce overheads and initially looked at Victoria, SW1, and Westminster, W1.
“But the quality of the buildings was appalling. They would have been moving downmarket,” says Pain.
So Carter Jonas directed WANO to Docklands, where it found the quality of space at the price it wanted at 25 Canada Square, E14. The rent at Canada Square is in the region of £35 per sq ft, below the rents now prevailing in the City and below those WANO would have paid on Wigmore Street.
“For tenants who want good grade-A space at less than £40 per sq ft, the only places are E1 and E14,” says Pain.
Rents and incentives
The shortage of demand has forced rents upwards but not as much as some would expect. And while incentives are reducing, they remain more generous than those seen before the recession.
Prime West End office rents have risen by between 5% and 9% since Q1 2013 to £100-£120 per sq ft. In the City, prime rents are up 4.6% to £55-£59 per sq ft, according to Carter Jonas. It was the northern City fringe of Farringdon, Clerkenwell, and Shoreditch that recorded the highest level of rental growth of between 13.3% and 15.8% in 2013.
“Since the second quarter of last year, quoting rents have gone up by £2 to £4 per sq ft, depending on the location and quality of build, and rent-frees, which would have been 12 months on a five-year lease until Q3 of last year, are now typically nine to 11 months,” says Pain.
The reduction in rent-free periods may seem meagre, but these compare with 15 to 18 months on a five year lease in 2009.
And rental discounts are still available too. Carter Jonas says discounts on landlords’ quoting rents are now typically 2.5%-5% in the West End and South Bank and 2.5%-7.5% in the city.
Tech bubble
The TMT sector has been the London miracle of recent years, buoying the capital above the recession that swamped the rest of the country.
The sector made up 18% of all central London lettings in the first quarter of 2014. But now industry analysts are warning of a new tech bubble that will at some point burst.
The doomsayers include US hedge funder manager David Einhorn, which foresaw the collapse of Lehman Brothers. It points to the huge amount of funding that has poured into the sector and the frenzy of multimillion-dollar acquisitions, such as Facebook’s $19bn (£11bn) acquisition of WhatsApp earlier this year.
While not all analysts agree that the tech sector is overvalued, one points out: “We don’t know we are in a bubble until it bursts.”
From the London property sector’s point of view, the collapse of TMT companies could bring benefits, according to Adam Landau of DeVono: “A dotcom bubble could provide extra office stock. This would free up some occupied buildings in the fringe areas of central London. If we see a tech crash, this will help free up some overpriced commercial space.”
It isn’t only high rents that are driving occupiers’ decisions on where to locate. Rapid rises in business rates have created an even deeper gulf between high- and low-cost areas.
The increase has been most dramatic in the West End, where the top business rates soared from £22.50 to £50 per sq ft between 2009 and 2014, according to Carter Jonas. In the City the increase was a mere £2.75 per sq ft to £22.50, offering a huge saving for occupiers relocating from west to east.
The increases stem from the 2010 business rates revaluation, which was based on the peak rental values of 2008, combined with annual uniform business rate multipliers linked to above-target inflation.
GVA has described ever-rising business rates as a “time bomb” and is calling on the government to stick to its original timetable for a rates revaluation in 2015. The government intends to postpone the revaluation until 2017.
“With the increasing burden of business rates on occupiers, the decision to postpone the 2015 revaluation is hard to justify. It represents a missed opportunity to ensure a fairer distribution of the tax,” GVA says in its report The business rates time bomb.
Business rates
It isn’t only high rents that are driving occupiers’ decisions on where to locate. Rapid rises in business rates have created an even deeper gulf between high- and low-cost areas.
The increase has been most dramatic in the West End, where the top business rates soared from £22.50 to £50 per sq ft between 2009 and 2014, according to Carter Jonas. In the City the increase was a mere £2.75 per sq ft to £22.50, offering a huge saving for occupiers relocating from west to east.
The increases stem from the 2010 business rates revaluation, which was based on the peak rental values of 2008, combined with annual uniform business rate multipliers linked to above-target inflation.
GVA has described ever-rising business rates as a “time bomb” and is calling on the government to stick to its original timetable for a rates revaluation in 2015. The government intends to postpone the revaluation until 2017.
“With the increasing burden of business rates on occupiers, the decision to postpone the 2015 revaluation is hard to justify. It represents a missed opportunity to ensure a fairer distribution of the tax,” GVA says in its report The business rates time bomb

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Estates Gazette

What diversity means for you

Ollie Saunders is a partner and head of valuation at Deloitte Real Estate and board member of Freehold, a professional network group aiming to progress equality for lesbian, gay, bisexual and transgender professionals
working in real estate.
He says: “Deloitte has had its own group for LGBT staff for a number of years called GLOBE. It actively seeks to support partners and staff through a strong network – there are lots of social events, a really good mentoring system and more formal events. It was apparent to me from day one that being gay at Deloitte is just not an issue. Key, though, has been to be visible in the organisation and not hide the fact that my partner is David and not
Debbie. By being open, we have encouraged others to be too.
“There is a business side to it as well. We are very clear about our attitude to LGBT staff in our recruitment drive – and in particular in the graduate market, which is getting so competitive. We are open with our clients – some of whom, of course, are gay. Does that give us a competitive advantage? Of course.”
A total of 60% of commercial occupier DeVono’s workforce is comprised of women. DeVono’s co-director, Adam Landau, is of the view that women are not represented equally in our industry and that it is now time for a change. He says: “As an occupier-led business, our clients have enjoyed working with women, because many of our clients are women themselves (rather than a male landlord-dominated market). While this is not reason enough nor diminishes male staff in any way, I’m alluding to a particular work dynamic created by women in our business which has proven to be a success.
“We have an equal opportunity job application process. We are currently expanding and have found some exceptional candidates who happen to be female.”
Law firm Irwin Mitchell created a diversity board in 2008, which reviews progress against transparent goals and objectives.
Alison Eddy, London managing partner, says: “We have set up a number of listening groups, gender being one, to help raise awareness internally and externally and support the diversity board on policy development.
“Irwin Mitchell has repeatedly been recognised for its work in improving the diversity of its people at all levels but we want to and are determined to do more to ensure we reflect the diversity of the communities with whom we work.”

Ollie Saunders is a partner and head of valuation at Deloitte Real Estate and board member of Freehold, a professional network group aiming to progress equality for lesbian, gay, bisexual and transgender professionalsworking in real estate.

He says: “Deloitte has had its own group for LGBT staff for a number of years called GLOBE. It actively seeks to support partners and staff through a strong network – there are lots of social events, a really good mentoring system and more formal events. It was apparent to me from day one that being gay at Deloitte is just not an issue. Key, though, has been to be visible in the organisation and not hide the fact that my partner is David and notDebbie. By being open, we have encouraged others to be too.

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“There is a business side to it as well. We are very clear about our attitude to LGBT staff in our recruitment drive – and in particular in the graduate market, which is getting so competitive. We are open with our clients – some of whom, of course, are gay. Does that give us a competitive advantage? Of course.”

A total of 60% of commercial occupier DeVono’s workforce is comprised of women. DeVono’s co-director, Adam Landau, is of the view that women are not represented equally in our industry and that it is now time for a change. He says: “As an occupier-led business, our clients have enjoyed working with women, because many of our clients are women themselves (rather than a male landlord-dominated market). While this is not reason enough nor diminishes male staff in any way, I’m alluding to a particular work dynamic created by women in our business which has proven to be a success.

“We have an equal opportunity job application process. We are currently expanding and have found some exceptional candidates who happen to be female.”

Law firm Irwin Mitchell created a diversity board in 2008, which reviews progress against transparent goals and objectives.

Alison Eddy, London managing partner, says: “We have set up a number of listening groups, gender being one, to help raise awareness internally and externally and support the diversity board on policy development.

“Irwin Mitchell has repeatedly been recognised for its work in improving the diversity of its people at all levels but we want to and are determined to do more to ensure we reflect the diversity of the communities with whom we work.”

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Estates Gazette

All the hidden extras

In today’s economic environment, occupiers are analysing their costs more than ever, especially when it comes to office rents and add-ons. Negotiations are key, says David Quinn.

The cost of offices is a key part of how any property market is judged, with prime rents being the major benchmarking device employed by both agents and the media.

While the device might be useful as an at-a-glance measuring tool, it tells only half the story and is unlikely to be much use to a real-world occupier. Instead, the tenants who actually sign up for space will be forced to take into account a complex mixture of other factors that either add to – or sometimes subtract from – the costs they are likely to bear in any move.

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In a constricted economic environment, occupiers are analysing all their property costs more closely than ever. This means a more open approach to the total cost of space is becoming increasingly important, while tenants are likely to haggle harder on the add-on costs that make up a deal.

New research from BNP Paribas Real Estate – revealed here for the first time – shows the total office costs in a range of locations in the UK. For the majority of

UK cities, the overall costs are quite similar and have remained static over the past 12 months. The exception is Birmingham, which saw a 5.3% rise in total costs, which made it the most expensive location outside London, despite a slighter lower headline rent than Manchester (see map).

The most obvious location for added costs is London, driven by business rate charges that make already expensive office locations even pricier. On top of prime rents in Mayfair of £100 per sq ft, occupiers will need to dig deep to find more than £50 per sq ft in added costs. While the West End remains static, Midtown total costs have been on the rise this year, adding more than £30 per sq ft to the rent and taking the total close to £100 per sq ft.

Dan Bayley, central London managing director at BNP Paribas Real Estate, believes the variation in total costs may be a driver for tenant activity within the capital.

“If you look at the most expensive locations, say Mayfair and St James, there’s an argument to suggest that if you can afford £100 per sq ft, you can afford the business rates. But if you’re a mid-sized professional services firm in a less expensive part of the West End, it becomes part of the equation that may make a move out of the West End more financially justified,” he says.

Bayley and other agents agree that most occupiers are reasonably savvy when it comes to working out the cost of their space and will be looking far beyond the headline rent.

“While we get hung up on rent, rates and service charge as component elements, an occupier will view this much more as a global figure and in many cases analyse alongside other costs so they can work out exactly what each work station costs them,” says Chris Cheap, director of GVA in Manchester.

Yet there remains an extent to which some occupiers might be surprised by the level of extra costs they will need to factor in. According to Adam Landau, director at London-based property consultant DeVono – which specialises in advising occupiers rather than landlords – costs routinely total around 30% more than a company was expecting to pay.

As well as the rent, rates and service charges, unforeseen costs may also include stamp duty, dilapidations, and VAT on rent. Landau advises sitting down with a property adviser and accountant at the outset to work out the best way to manage such costs efficiently.

There is some evidence that landlords and developers are facilitating a more transparent approach to total costs on some new buildings. Alongside the headline rent, the various add-ons sometimes form an important part of the marketing strategy when comparing like-with-like in different locations.

“We have graphs that show total costs for occupiers as part of our marketing material. Perhaps not on all instructions but in some particular cases it will be in there,” says Andrew Willcock, associate director at Savills.

He points to the example of Canmore’s Interchange Croydon building, on which Savills is instructed, and says the firm’s marketing approach makes “explicit” the difference between total occupational costs that come in about half those of Victoria, located little more than 15 minutes away by train.

Developer Argent, which has buildings under development and recently completed in both Birmingham and Manchester, as well as London, says it aims for a similar level of openness.

“We always try to give advice on business rates and other costs when putting proposals to people, so they have a clear, full picture,” says director James Heather. “It tends to be talked about when someone’s interested, after we’ve entered into a dialogue with them. You almost need to forget about what the headline rent is and think about the occupational cost over the length of the lease.”

The one area of cost that is likely to cause most contention is the service charge. A cap on such charges has become a popular demand among occupiers but may actually be to the detriment of the tenant in the long run, according to both agents and developers.

“If you have a service charge cap, as an occupier you have to make sure that the building is actually functioning as it should be. A cap might mean that repairs and other aspects of the service you’d expect isn’t happening,” says Willcock.

THE ART OF THE INCENTIVE

Agents and developers suggest the totality of the cost of any deal cannot truly be considered without factoring in the incentives that occupiers are able to negotiate. Typically, they are a product of local market dynamics at any given time but occupiers are increasingly likely to expect them as a matter of course.

Adam Landau of DeVono describes the overall process of negotiation as “occupier strategy” and suggests occupiers should be organised and knowledgeable before viewings commence.

“People generally know about rent-free periods and would rather the landlord didn’t take their money in the first place, rather than have the money given back to them,” he says.

Landau admits these two forms of incentive sound similar but points out they actually involve accounting processes that are “completely different” and may benefit either landlord or tenant in different ways over the length of the lease.

Argent’s James Heather says rent free periods or reduced rents over a set period might be offered by a landlord depending on what the occupier wants. Others prefer a contribution to fit-out costs.

“We do try to understand about what our occupiers want, so you tailor the deal to fit the requirement,” he says.

Landau advises that occupiers should think carefully before setting out demands. “You might alienate a landlord by over-asking. You have to pick your battles and make sure you’re not too far apart in the negotiations.”

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Estates Gazette

The show must go on

Theatre in retail: fancy window displays, over-the-top interior design, new gadgets, or simply good customer service? Noella Pio Kivlehan goes in search of the answer

Asking the industry to define theatre in retail is like opening a can of worms. And it is a can that gets bigger and wider the more people who are canvassed. In a nutshell, all respondents agree it is about giving the customer an experience. Then, definitions spiral off.

Some say the experience is down to customer service: “Exceptional customer service is at the heart of [a trip to the physical store]. Shops which excel at theatre have the customer at the centre of everything – Apple, for example. It’s about delighting customers on every visit and adding to the overall experience,” says Lawrence Hutchings, Hammerson’s managing director of UK Retail.

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For others, it is stimulating the customers visually. According to Philip Sandzer, head of retail acquisitions at

DeVono Property, the key ingredients are “expensive visuals and merchandising, open kitchens in restaurants, display areas and interactive corners”, along with customer service.

Then there are those that tap into customers’ feelings. “Theatre in a retail environment means creating an

experience that is memorable for customers, and which ultimately creates a connection that makes them buy, return, buy again and recommend. This means being exciting and relevant, and engaging on a rational and emotional level,” says Robert Goodman, general manager of shopping behemoth Bluewater.

Whatever the definition (see panel), creating theatre usually means that the retailer or landlord has to spend money – even if it is to train their staff. So, with the likes of Burberry reportedly splurging £1m for a giant TV for its soon to- open Regent Street store, or Ralph Lauren’s 4D digital show on Bond Street in November 2010, is it only the top brand names and large landlords that can afford to do this?

“Absolutely not,” says an emphatic Allan Lockhart, property director at NewRiver Retail. “Big innovative nationals who hang their brand identity should be doing this as their bread and butter, full stop. But small nationals or local independents can still very much get in on the action and have an advantage – by being local they can tap into local affordable resource and, rightly enough, support local resource.”

What about location? Would wacky and unusual – think Aldo’s huge void area in its soon-to-open Oxford Street store – work only in major conurbations as opposed to a smaller provincial town?

“Not necessarily: think global, act local,” says Lockhart, repeating his “local” theme. “[Theatre] is about acting and executing something relevant to the local market. Whether that’s the smaller but dominant shopping centre in a small town or the flagship Argos, it’s about being local.”

As for shopping centres, Alan Thornton, chairman of the BCSC retail marketing group and director of MADISONSOHO, believes landlords need to ask: “‘What can I provide in the way of experience that shoppers can’t download?” It could be a major event activity like CentrO Oberhausen’s award winning Rizzi art show. But it could also be as simple as horticultural demos run from a flower kiosk or yoga classes in an empty unit.

“Westfield Stratford City includes a built-in kitchen demonstration area in the mall. Retailers are similarly cottoning on to the benefits of brand differentiation through the experience of the stores. A glass of champagne and a grand piano in fashion store Sacoor Brothers or the construction of the fictionalised thematic high street to Tedbury in a new Ted Baker concept store,” says Thornton.

One thing is clear: with the modern day internet shopping onslaught, retailers across the country need to offer customers something of note – even if it is not having semi-naked men at the door (Abercrombie), but merely giving cheap, up-to-date fashion (Primark) – or they will go out of business.

“Look at the retailers that have failed over the past few years,” says DeVono’s Sandzer. “Most of them were tired, dull retailers that hadn’t moved into the 21st century. How many of us now buy our books, CDs, computer games, electrical goods, furniture, sports goods and holidays online? Think of the retailers we historically bought these products and services from.

“Is it any wonder they no longer grace our high streets and shopping centres? Theatre makes the customer feel part of the experience as window displays are static, on the whole.”

Thornton concludes: “It’s worth considering how many retailers successfully use shopper experience to bolster their customer service. Anyone who’s seen the Apple staff lining up to applaud shoppers on launch day will know that Apple staff are trained to perform, but in this case it’s the shopper that’s made the star of the show.”

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Estates Gazette

Sitting Tight! Lease events

Through the gloom of recession, one ray of light appears to be shining through to the City property market. Lease events – lease expiries or breaks – could generate letting activity at a time when expansionary moves are the exception.

On paper, the figures look encouraging. According to research from Jones Lang
LaSalle (see graph), an average of 4m sq ft could be transacted each year between
2013 and 2016 as a result of lease events. That is almost 1m sq ft more than the total take-up in the City in 2011.

Dan Burn, head of City agency at JLL, says: “The majority of lettings are driven by breaks and expiries. In the past five years, 60% of take-up was the result of lease events.”

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But many City experts warn that the quantum of future lease events could be misleading.

George Roberts, head of London occupier representation at Cushman & Wakefield, says: “There’s a lot of noise about lease events, and people are trying to take comfort in it. In reality though, the majority of occupiers will regear rather than move, and few are likely to exercise their break options. Even at the best of times, less than 50% of tenants move at a lease event, and at the moment I reckon it’s less than 25%.”

On that basis, the glittering 4m sq ft of potential lettings each year fades to a less exciting 1m sq ft, though there is much debate within property circles about exactly what percentage of occupiers are likely to move. Some have suggested to EG that the figure is nearer 70%, while others believe it is as low as 10%.

Those who work closely with tenants, such as Adam Landau of niche agency Devono, which specialises in acquiring space, say they are used to hearing a common refrain. “The decision is often to stay put,” says Landau, “and there seems to be a passion for tenants to remain in their space if they can.”

And for very good reason, adds Charlie Bishop, director at property company Moorevale. The high capital costs of moving and the disruption to staff are much higher than reworking existing space, even if that means upgrading plant and machinery.

He says: “If a tenant is happy with his building, there is a strong economic
case to stay put, if the option is open.”

Ironically, improvements in building quality over the past couple of decades have significantly enhanced the overall profile of office stock in the Square Mile.

Michael Marx, chief executive of Development Securities, points out: “Secondhand space in the City is not that bad. A bit of work and the building is good for another 10 years.”

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