TRINITY HOUSE LONDON ROAD REIGATE

Transcription

1 TRINITY HOUSE LONDON ROAD REIGATE MARKETING REPORT 25 APRIL 2012

2 TRINITY HOUSE LONDON ROAD REIGATE MARKETING REPORT 25 APRIL Introduction 2.0 Maxwell Brown 3.0 Trinity House - Background Information 3.1 Floor Areas/Car Parking 3.2 Occupier History 3.3 DMG Break Clause Negotiations 4.0 Marketing Exercise 4.1 Basis of Instructions 4.2 Guideline Terms 4.3 Marketing Initiatives 4.4 Applicant Interest 5.0 Factors Affecting Marketability 5.1 Office Location 5.2 Specification 5.3 Building Configuration 5.4 Refurbishment Financial Appraisal 6.0 Reigate/Redhill Office Market 6.1 Demand/Supply 6.2 Office Trends 7.0 Summary Appendix 1 Office Availability Schedule Appendix 2 Marketing Particulars Appendix 3 Estates Gazette and Property Week Advertisements

3 TRINITY HOUSE LONDON ROAD REIGATE MARKETING REPORT 1.0 Introduction Maxwell Brown were instructed by the freeholder owners, Scottish Widows Investment Partnership, to commence marketing the property in August 2010 after DMG (parent company of occupier Surrey Mirror) had implemented a break clause and confirmed that they would be vacating the building in October This Report summarises the marketing campaign, the marketing initiatives undertaken and the response from the market as well as an overview of the factors that have affected the marketability of the building. 2.0 Maxwell Brown Maxwell Brown are a niche firm of chartered surveyors and commercial property consultants. Having been established in Reigate for nearly 30 years, our particular expertise is the local Reigate/Redhill office market where we have had an involvement on almost every office building in both towns dealing with disposal and acquisition work, landlord and tenant negotiations, investments, development, rating and dilapidations advice. As the Director responsible for transactional work and agency instructions, the focus of my work has been market related dealing with both occupiers and landlords and therefore closely monitoring applicant interest, demand and supply. 3.0 Trinity House - Background Information 3.1 Floor Areas/Car Parking Trinity House comprises three floors of offices with basement storage and the following net internal floor areas: Basement storage 5,369 sq ft Ground floor reception 274 sq ft Ground floor offices 3,502 sq ft 1 st floor offices 5,989 sq ft 2 nd floor offices 6,005 sq ft Total 21,139 sq ft There are 37 car parking spaces in the rear car park.

4 3.2 Occupier History Trinity House, formerly known as Ringley House, was originally built in circa 1980 to replace the original buildings on site that were a terrace of ground floor/basement retail units with residential and ancillary uses at first and second floor. Ringley House was let on completion to R Watson & Sons (now Towers Watson) who had their head office in the building on the other side of the level crossing and therefore occupied both buildings in combination, before relocating their head office to new purpose built offices at the current Watson House in Ringley House became surplus to requirements when, after continued expansion, Watsons acquired a new, larger and more modern property at Terra Firma, Redhill in The lease at Ringley House was subsequently assigned to Trinity Newspapers for occupation by Surrey Mirror and the named changed to Trinity House. More recently, following a corporate acquisition, the tenant became DMG and, following the expiry of the original lease in 2005, a new lease was granted for 10 years with a tenant only break clause after 5 years. 3.3 DMG Break Clause Negotiations DMG implemented their break clause by Serving Notice in October Detailed negotiations were undertaken with DMG through spring and summer 2010 to persuade them to stay in the whole or part of the building. However they confirmed the building was too large for their requirements and that they had a preference to relocate to a single, open plan office suite of 6,000 sq ft in a modern air-conditioned building at Regent House in Redhill. Surrey Mirror therefore vacated the building in Autumn 2010 in advance of the break clause date in October Marketing Exercise 4.1 Basis of Instructions Our instructions to commence marketing were confirmed on 11 August 2010 and the period of marketing is therefore over 20 months as at the date of this report. The marketing is ongoing. The basis of our instruction was to identify potential office occupiers for the whole building or floors on either a leasehold or freehold basis subject to a refurbishment of the building to an agreed specification to match any potential office occupiers specific requirements. 4.2 Guideline Terms The offices have been marketed on the basis of a new lease for a term by arrangement. The previous passing rent under the 2005 lease was 19 psf for the unrefurbished building but the guide rent for a new letting was set at a more competitive level of between psf to psf depending on the level of refurbishment to be undertaken by the landlords as part of a deal. This level of quoting rent was to ensure it was competitive compared with the quoting rents on other buildings in the Reigate/Redhill market. The freehold guide price was set at 2.25m equating to circa 100 psf on the basis that the property would be taken in its existing condition but with an indication that offers below this level would also receive consideration.

5 4.3 Marketing Initiatives Our clients are an institutionally owned property fund with vast experience of managing this type of property asset and a budget was agreed with them at a level to enable a full and proper marketing campaign to be undertaken for the building. The marketing initiatives, as set out below, were implemented and the response from the marketing campaign was reviewed regularly with the client throughout the period of the campaign: An agency board is the best source of direct enquiries for a building and there has been a board erected in a prominent position at the front of Trinity House with good visibility to London Road throughout the marketing campaign. Particulars prepared (see copy in Appendix 2) Mailing exercises to local, regional and Central London commercial property agents via Estate Agents Clearing House Mailing exercises to local occupiers and applicants on our in-house database Advertising the property in the main property publications, Estates Gazette (September 2010) and Property Week (September 2010 and June 2011), see copies in Appendix 3. Entries on the Maxwell Brown website and other relevant databases such as NovaLoca, EgPropertyLink, Focus, Commercial Property Register, etc As experts in the local market, we receive enquiries from a wide variety of sources and our role has been to promote the opportunity available at Trinity House to all applicants and agents with relevant requirements. The marketing is ongoing with the agency board still erected at the front of the property, entries in various databases and with particulars being sent to any relevant requirements circulated by agents or received direct from potential occupiers. 4.4 Applicant Enquiries In view of our wide coverage and expertise in the local market, we receive enquiries from a variety of sources and details of Trinity House were sent to all applicants with office requirements in the size range 5-20,000 sq ft. During the period of marketing, although particulars were sent to a wide range of general office applicants, there were only 4 office occupiers who expressed interest specifically in Trinity House. These requirements were as follows (full names withheld for confidentiality purposes): Applicant 1: Requirement for a freehold office building of 5-6,000 sq ft. Trinity House considered to be too large and not prepared to take letting risk on surplus space. Applicant 2: Redhill occupier with a potential requirement for up to 10,000 sq ft in the local area. Would prefer a building ready to move into and not prepared to carry out an inspection. Applicant 3: New start-up company based to the north of Croydon currently bidding for contracts throughout the southern home county. New business venture and, if successful in winning new contracts, will require a freehold building of circa 20,000 sq ft. No inspection undertaken and not considered to be a serious enquiry.

6 Applicant 4: Locally based company with a requirement for top-up space of 3-4,000 sq ft or possible relocation into circa 10,000 sq ft. Undertaken an inspection but has decided to retain existing building and are negotiating on a self-contained top-up building of 4,000 sq ft closer to their existing offices. In total there have been over 100 enquiries for the building as a result of the marketing. However, with the exception of the parties listed above, every other direct enquiry from the agency board, advertisements and websites were from applicants enquiring about the potential for redevelopment of the property rather than from potential office occupiers. 5.0 Factors Affecting Marketability 5.1 Office Location The prime office location in Reigate is from the level crossing down London Road to Castlefield Road. Trinity House sits on the wrong side of the level crossing and all the other neighbouring properties on Somers Road are residential, other than the neighbouring building No. 1 Somers Road which is a converted residential property. Micklefield Prep School is also a near neighbour on Somers Road. As a result, this is not an ideal office location. 5.2 Specification Trinity House is over 30 years old and is now obsolete and not capable of occupation without significant refurbishment works. These refurbishment works would be compromised by the limited floor to ceiling height that would preclude the installation of modern office finishes such as a raised floor as well as a new ceiling mounted heating/cooling. Any refurbishment project would also need to be mindful of the requirements under part L of the Building Regulations, Disability Discrimination Act and to achieve environmental credentials such as EPC and BREEAM ratings commensurate with those of other competing properties. 5.3 Building Configuration The building is on a tight site and wraps the corner from London Road into Somers Road. The L- shaped foot plate on the 1 st and 2 nd floors is split by a central core and there are two small suites separated by the reception on the ground floor. This makes the building very inefficient to occupy by a single occupier and would require significant sub-division works to create self-contained suites if the building became multi-let. Whereas it is sometimes useful to have an element of storage as part of an office building, the basement storage area at Trinity House is 5,369 sq ft which is 34% of the total office area in the building. This is far larger than is required for a building of this size and, to put it into context, is the same storage area that would normally be found in a 60,000 sq ft office building. There is no natural light and the basement area also contains some of the building s plant and equipment so this area is not capable of conversion/upgrading to office use.

7 5.4 Refurbishment Financial Appraisal At the outset of the project, building surveyors were instructed to work up a scheme to refurbish the building to a standard commensurate with a guide rent at psf and this was costed at circa 2.2m including fees. Assuming the building would need to be multi-let and the time taken to achieve 6 lettings (2 lettings per floor), if an allowance is made for some negotiation down on the rent, the inclusion of break clauses at year 3 or 5 and a market rent free incentive, any financial appraisal results in a negative value for the building. The building is economically unviable to refurbish and will only continue to deteriorate further. 6.0 Reigate/Redhill Office Market 6.1 Demand/Supply As a general comment, the Reigate/Redhill office market was very quiet in 2009 with only 40,000 sq.ft. of lettings, but achieved circa 120,000 sq ft of lettings in 2010, a figure that compares well with average annual take-up. The figure of 120,000 was matched again in During the period of our marketing of Trinity House there have been a very limited number of requirements from applicants looking for offices in excess of 10,000 sq ft and, for example, in 2011 there were only two transactions in this size range across the whole market. The total office stock in Reigate/Redhill is 2.3m sq ft (as confirmed by Reigate & Banstead Borough Council) and our analysis of total availability as at 1 January 2012 was approximately as follows: Reigate Redhill Total 183,000 sq ft 223,000 sq ft 406,000 sq ft There is therefore circa 18% of total stock currently on the market (ignoring potential new development floor space). Employment land studies typically state that optimal vacancy rates should be between 5-10% (research in Europe suggests a vacancy rate of 7.5%) in order to have a more even balance between demand and supply. We attach as Appendix 1, a summary of those buildings in the market where building suites in excess of 5,000 sq ft are currently available and therefore providing competition to Trinity House. 6.2 Office Trends Demand for offices from all types of occupiers, whether corporate or institutional, has reduced in general over the last decade. The economic downturn has further exacerbated the issue but pre 2009 it was already evident that the introduction of new IT systems, flat screen monitors, more efficient workstation layouts and the move from cellular to open plan as well as new workplace practices such as remote or home working, flexi-hours etc, has all resulted in office occupiers being more cost efficient and generally reducing the amount of office floor space that they require.

8 Whereas in the 1980s and 1990s many corporate occupiers would have a central London head office and then satellite offices in other key locations around the M25 such as Reigate/Redhill, this has completely changed. The typical head office will now comprise large floor plates of 10-20,000 sq ft with minimal partitioning and a work force that are far more mobile and able to work from laptops, mobile phones etc or if necessary using touchdown facilities in serviced office centres. In Reigate we have recently seen Kimberly Clarke reduce their occupation in the town from three buildings to just one and it was not surprising that DMG took the opportunity to implement the break clause at Trinity House in order to reduce the office size from 20,000 sq ft to 6,000 sq ft. The regeneration of various key Central London locations such as Paddington and King s Cross are offering an exciting and vibrant office environment for growing companies who these days prefer to remain in inner London rather than decentralize. Reigate/Redhill s office stock is dwarfed by the amount of space available in the nearby centres of Croydon and Gatwick/Crawley. In general the amount of office stock that was developed to accommodate expanding businesses and demand during the 1980s and 90s is now far greater than is necessary for current or future demand irrespective of the current economic climate. Every opportunity should therefore be taken to reduce the current over supply of offices currently at circa 18% down to the optimal vacancy rate of say 7½% and, at this level with the demand/supply graph more evenly balanced, this would enable landlords to better justify the costs and risks of investing money in developing or refurbishing vacant buildings to the standard required by modern occupiers. 7.0 Summary Maxwell Brown are experts in the local Reigate/Redhill office market and have undertaken a full and proper marketing campaign over a period in excess of 20 months. The marketing is ongoing. We would summarise as follows: The marketing campaign has demonstrated that there is no demand for the existing building. It is economically unviable to refurbish/rebuild the offices. There is over 400,000 sq ft of vacant offices in Reigate/Redhill which is 18% of total stock. Demand for offices has reduced across the market due to modern technology and a change in workplace practices. It is simply not necessary to protect the existing office stock particularly in fringe locations and a gradual reduction in supply is required. Demand and supply need to be more evenly balanced to enable rental levels to be sufficient to justify the costs and risks of refurbishment.

9 If tenants are prepared to relocate, the normal expectation is that they will want to upgrade rather than downgrade the quality of their office environment whilst at the same time acquiring offices that provide good value for money on a freehold basis or cost effective/flexible terms on a leasehold basis. There is a wide variety of choice of better quality opportunities in the Reigate/Redhill market and if buildings such as London Court and Omnibus struggle to find tenants then Trinity House stands very little chance of success as our marketing exercise has clearly demonstrated. Signed on behalf of Maxwell Brown N. J. Woodman BSc (Hons) FRICS Director Mobile: nwoodman@maxwellbrown.co.uk S:\Filing\Agency\Trinity House\Marketing Report doc

10 Appendix 1: Office Availability Schedule

11 REIGATE /REDHILL OFFICE AVAILABILITY SCHEDULE APRIL 2012 Property Photograph Size (sq ft) Rent Tenure Specification Comments Net Internal Area /sq ft REIGATE Omnibus Lesbourne Road 41, London Court London Road Trinity House 61 London Road The Observatory Castlefield Road Wray Coppice Oaks Road 35, New FRI lease Whole or floors with breaks if required 21, F/H for sale or New Lease 18, Lease terms available upon application 12, F/H with vacant possession or new lease New lease Full height atrium Four pipe fan coil air conditioning Full access raised floors Suspended ceilings 2 x 13 person lifts M/F & Disabled WC s 33 parking spaces (1:286) Full Grade A specification 70 car parking spaces (1:506) VRF Air Conditioning 2 x 8 Pers passenger lifts Suspended ceilings LG7 recessed lighting M/F WC s & showers on each floor Roof Terrace Cycle store with drying room Gas fired central heating Perimeter trunking Suspended ceilings wit Cat.II lighting 10 person passenger lift Basement storage Male & female toilets on each floor Car parking 1:424 sq.ft. Air conditioning Raised Floors Suspended Ceilings Column free space On site catering facilities Car parking at 1:454 sq.ft. Gas fired central heating Full access raised floors Suspended ceilings with integral lighting Passenger lift in front wing Wings interconnect at ground and 1 st floors Car parking 1:193 sq.ft Atrium 1,421 G/F 10,875 1 st fl 11,021 2 nd fl 9,162 2 nd (E) 9,482 New development completed in June 2009 Rent reduced from psf. G/F Rec. 662 G/F 8,797 1 st 9,317 2 nd 9,353 3 rd 7,740 G/F rear let to International Rectifiers G/F 4,445 1 st 14,275 Modern offices with potential for conversion to residential Front W 6,475 Side W 6,275 1 of 3

12 REIGATE /REDHILL OFFICE AVAILABILITY SCHEDULE APRIL 2012 Property Photograph Size (sq ft) Net Internal Area Wolvers 6,479 Home Farm Sidlow Rent /sq ft Tenure Specification Comments New lease Feature reception Rural location Underfloor heating Partitioning in place in part Ground Floor: Attractive courtyard and landscaped Suite 1 1,600 grounds Suite 2 1,700 Male and female WCS Suite Car parking 1:162 sq.ft. Suite First Floor 1, High Street REDHILL Kingsgate High Street 4,795 44, New lease Comfort heating & cooling Suspended ceiling Communal kitchen facility Perimeter trunking Cat II lighting Fully carpeted New FRI lease(s) New development Full Grade A specification 4-pipe fan coil air conditioning Two 13 person passenger lifts Panoramic views from podium level DDA facilities with showers Car parking 1:1,419 sq ft Accommodation of approx 500 sq ft avail. Suite 1-1,464 sq ft Suite 2-1,421 sq ft Suite 3-1, 195 sq ft Quoting rent dropped from psf G/F Rec. 841 G/F 5,433 1 st 6,220 2 nd 6,223 3 rd 6,226 4 th 6,219 5 th 6,219 6 th 5,151 7 th 1, London Road 34, New Lease with incentives on the basis of a 10 year term. Bespoke fit out with partitioning & finishes as required. Comfort cooling/central heating Suspended ceilings and compliant lighting Excellent natural light Planning applications for 47,800 sq ft & 88 cars by Lamron Estates Forum House Brighton Road 21, m. New lease(s) Or F/H available VAV heating/cooling system Raised access flooring with Cat.II lighting Open plan, column free offices 2 x 8-person passenger lifts Male, female and disabled WCs 71 car parking spaces (1:302 sq.ft.) Grd 5,060 1 st 6,130 2 nd 6,161 3 rd 3,760 2 of 3

13 REIGATE /REDHILL OFFICE AVAILABILITY SCHEDULE APRIL 2012 Property Photograph Size (sq ft) Net Internal Area Rent /sq ft Gatton Place 23, St. Matthews Road Tenure Specification Comments New leases Open plan office suites Air conditioned Suspended ceilings with Cat II lighting 3 compartment underfloor trunking Car parking 1:418 sq.ft. G/F Front 1,818 - LET G/F Rear 3,349 1 st Floor 3,370 2 nd Front 3,393 2 nd Rear 3,357 3 rd Front 3,340 3 rd Rear 6,616 Knowles House High Street 15, for smaller suites on 2 nd floor New lease Central heating and comfort cooling Suspended ceilings Category 2 lighting Full access raised flooring On-site parking 1 st Suite A 3,700 1 st Suite C nd Suite A 4,392 2 nd Suite C 3,931 * Smaller suites available from 256 sq.ft. Red Central High Street Bridge Gate High Street 5 th floor 3 Princess Way Zone 3.2 5,693 6,254 6, New lease Full Grade A specification Air conditioning Raised floors Car parking 1:464 sq ft Refurbished glazed reception Full time reception cover 3 x 10 person passenger lifts Sublease to New subleases to 2014 Air conditioning Open plan suite Full access raised floors Suspended ceiling 2 x 10 passenger lifts Car parking 1:345 sq ft Air conditioning Raised floors Restaurant Fully managed reception and security Car parking tbc Last remaining floor in new development unlet since building completed in st Flr. Suite 5,693 Quoting rent reduced from psf Crown House Gloucester Road 5, Assignment of existing lease expiring 2019 Air conditioning Passenger lift Full access raised flooring Suspended ceilings with Cat.II lighting 41 car parking spaces (1:219 sq.ft.) Quality detached building Grd 1,552 1 st 3,693 S:\Filing\Agency\Trinity House\Availability - Reigate and Redhill April doc 3 of 3

14 Appendix 2: Marketing Particulars

15 FREEHOLD FOR SALE OR MAY LET TRINITY HOUSE 61 LONDON ROAD REIGATE, RH2 9PR FLOOR AREAS Net internal areas approx.: Basement Storage Ground Floor Reception Ground Floor Offices First Floor Offices Second Floor Offices TOTAL 5,369 sq.ft. 274 sq.ft. 3,502 sq.ft. 5,989 sq.ft. 6,005 sq.ft. 21,139 sq.ft. SPECIFICATION/AMENITIES Prominent position in Reigate s prime location Open plan offices Gas fired central heating Perimeter trunking Suspended ceilings with Cat.II lighting 10 person passenger lift Basement storage Male & female toilets on each floor 37 car parking spaces (1:424 sq.ft.) LOCATION Reigate is a strategic office location with immediate access to the national motorway network via J8 of the M25 between Gatwick Airport (7 miles) and Heathrow Airport (35 miles). Trinity House is prominently located on London Road opposite Reigate train station and within walking distance of the town centre. TENURE Freehold for sale with vacant possession or new lease available on terms to be agreed. FREEHOLD PRICE / RENT On application BUSINESS RATES Business rates will be payable. Please verify rateable value, UBR and any transitional adjustments by contacting the local rates office at Reigate & Banstead Borough Council ( ). FURTHER INFORMATION Nick Woodman nwoodman@maxwellbrown.co.uk / Viewing by prior appointment only EPC ASSESSMENT Crown Copyright Licence nos and Last Updated: DISCLAIMER: Maxwell Brown advise that these particulars do not form part of an offer or contract and are intended for general guidance purposes only. They have been prepared from information supplied to us and interested parties should satisfy themselves as to the accuracy of the floor areas, tenancy details etc and whether the premises are fit for purpose before entering into a contract. All prices and rents are exclusive of VAT and the property is offered subject to contract.

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17 Appendix 3: Estates Gazette and Property Week Advertisements

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