11 MAY 2015 REVIEW OF VIABILITY OF CONTINUED USE AS OFFICES RELATING TO A PROPERTY AT 3 & 4, MARK HOUSE MARK ROAD HERTFORDSHIRE

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1 11 MAY 2015 REVIEW OF VIABILITY OF CONTINUED USE AS OFFICES RELATING TO A PROPERTY AT 3 & 4, MARK HOUSE MARK ROAD HERTFORDSHIRE VICTORIA STREET ST ALBANS AL1 3HZ TEL FAX

2 Contents 1.0 Mark House Commentary Ownership Refurbishment Recent occupational history Specific property issues Comments on the local surrounding area Comments on the surrounding occupiers Marketing Occupational Interest Competition Quoting terms Future for the commercial office market in Hemel Hempstead v5.02 May14

3 Our Ref: IA /3&4 MarkHs Your Ref: PH 13 May 2015 ADDRESSEE FOR THE ATTENTION OF PROPERTY INSTRUCTION PURPOSE OF REPORT INTRODUCTION PHD Chartered Town Planners, PO Box 700, St Albans Phillip Hughes Units 3 & 4 Mark House, Mark Road, Hemel Hempstead To review the future viability of Mark House for continued office use Your instructions are to review the marketing carried out to date and advise on the interest that has been shown in the property and to make comment on the viability for office use My name is Ian Archer MRICS. I am director in charge of Commercial Agency for West Hertfordshire at Aitchison Raffety. I have been active in the commercial property market and in particular Hemel Hempstead since 1987, some 27 years, dealing with sales, lettings and planning of new developments. I have been involved with a wide range of commercial property, including retail, industrial, offices and other types such as church facilities and childrens nurseries. Aitchison Raffety is a Regional Property Consultancy with over 150 staff in number, at offices centred in Hertfordshire, at Hemel Hempstead, St Albans and Berkhamsted as well as offices up to Milton Keynes and Birmingham in the north and Stokenchurch, Bucks in the west. I set out below my summary of the key factors of the site as well as policy, and an assessment of the market for this site

4 1.0 MARK HOUSE COMMENTARY 1.1. The building comprises a 1,157 sq.m (12,454 sq.ft) semi- detached unit built around The property was originally designed as a large single two- storey hi- tech building of 2,322 sq.m (25,000 sq.ft), with offices on the first floor and workshop space on the ground floor for technology industries. The ground floor height from floor to underside of first floor is circa 3.5m. The space was left unfitted on the ground floor, with no raised floor, no plastered or lined walls and no electrics but ready to take tenants fittings. There were also 2 loading doors at the rear However, after the property was completed the market for this space did not take off, partly due even back then to the location being off a side road within the Maylands Estate, and not being considered prime enough. Due to the size of building on offer being relatively large, totalling circa 2,314 sq.m (25,000 sq.ft) only major tech companies could have signed up for the building, but major tech companies would not have considered the location as being prime enough As a result of the lack of interest, the building was then divided in to the flexible space that now exists, allowing occupation as 2, 3 or 4 units. After further problems with a lack of interest the unit was fitted out entirely as offices, with a raised floor installed in the ground floor, along with gas central heating, a suspended ceiling and carpeting. One unit was let in its entirety, being units 1 & 2 and the other, units 3 & 4, was let floor by floor It is understood to have taken until around 1995 before the building was fully let Since that time, when space has come on to the market it has always taken a considerable time to let. Aitchison Raffety were involved in letting the first floor unit 4 to previous occupier Teligent, with the space on the market for around 3 years Teligent then took over the ground floor and used the property largely as a datacentre for a BT contract but then lost the business contract and had to give up the leases, winding down their operation such that the ground floor was given up initially in 2008 and the first floor was then given up in Aitchison Raffety have been offering the property to the market as an office because that is how it is currently fitted out but the Landlord is also willing to entertain Research & Development or storage enquiries, and we have a quote for reinstating the loading door to the rear in case occupiers would like this undertaken Few companies have been willing to consider the property for storage space as the height of the ground floor is not high enough for pure distribution. Few companies want 50% offices compared to warehousing and therefore the site is not generally of interest to the warehousing and storage sector. There are companies that like warehousing with a head 1 of 12

5 office function but they tend to want high bay warehousing plus a pod of 2- storey offices added on the front. The offices in these buildings tends to be 10 to 15% of the total area, whereas at Mark House the office space would be 50% of the total if the entire ground floor was used The building is surrounded by industrial uses. Of particular concern is the land beyond the western boundary where J.F.Bishop skip hire company occupies a large site of approximately ha (1 ac) that runs across the entire rear boundary. The skip hire site produces a considerable quantity of dirt and dust from the skips being delivered back to the site, and although they have a damping down system, the quantity of dust is far to high for it to cope with and the outside of Mark House is permanently coated with dust and dirt. This makes the outlook unattractive from the rear. Noise can be considerable during the day, especially when contents of skips are being unloaded in to the storage receptacles on the site The companies that have viewed have been put off in large part by the dirt and dust from the skip hire operation as the environment is perceived to be a low quality industrial environment In addition, now that Gyron have moved in to the building at the front at 150 Maylands, on the opposite side of Mark Road and have fitted this out as a datacentre, with plant equipment and air- conditioning chillers in the yard, the aspect to the front is also quite heavily industrial. Prior to occupation by Gyron the use was as a warehouse, with the yard in use with trucks, which also contributed to a feeling of being in an industrial estate. The building has therefore suffered from being located in one of the more heavily industrial parts of Hemel Hempstead for a long time, all of which has contributed to the length of time that space remains on the market in Mark House 2.0 OWNERSHIP 2.1. The Landlord has been in Receivership since The Freeholder is Malvern Property Services Ltd acting by Tim Perkin and Mark Creamer joint fixed charge receivers of the property. 3.0 REFURBISHMENT 3.1. The Receiver approved substantial refurbishment works to the property in 2012 to try to improve the letting prospects. These works included:- i. Remove and replace ceiling tiles ii. Remove and replace carpet iii. Remove and replace raised floor iv. Remove entrance flooring and lighting and replace with new v. Update electrics to make safe 2 of 12

6 3.2. In addition the central heating has been removed and a cost has been set aside to reinstate heating by means of individual air- conditioning units. All of this has been at a substantial cost, including the removal of a large quantity of previous tenants partitions and old fittings Due to the lack of income the owner is likely to face further difficulty in raising funds for the cost of improvements to raise the overall image of the building, which will result in the building falling further behind compared to competing buildings and will also be more of a drain on the owners funds for the maintenance of the remainder of the estate, making this a vicious downward cycle Additional improvements that should be undertaken should include the replacement of almost all of the window units as the double glazing seals have gone after nearly 30 years. As the building has a considerable number of windows, this is a significant cost. The repairs to the windows would not however result in any greater rent but would cost the Landlord a significant sum of money Work should also be undertaken to improve the external landscaping, signage and the fencing so that the property looks more appealing to visitors Modernising the front entrances would assist in making the building more inviting, but again this is a considerable expense At present the level of rental expected, the length of lease that would be expected and the amount of incentives required to let the building would not make it economic to undertake further refurbishment. 4.0 RECENT OCCUPATIONAL HISTORY 4.1. The only existing leaseholders are 3D Systems, at Units 1 & 2 Mark House, using the space as part office and part Research and Development space The building has been formally marketed on behalf of the receivers since November When we were appointed to market the space, the ground floor was already empty, having been vacated approximately 12 months prior, and the tenant of the first floor, who had been occupying the ground floor as well, had just announced that they were planning to vacate the first floor as well at the end of their lease within six months. The first floor has been vacant since SPECIFIC PROPERTY ISSUES 5.1. The building could be used for a mix of office and storage/light workshop uses, or purely as offices. 3 of 12

7 Heart of Maylands Report on Demand and Uses 5.2. It has become relatively obsolescent in comparison to better quality offices elsewhere within Hemel Hempstead such as Breakspear Park, Hemel One and PeopleBuilding. The reasons for this are numerous and include issues over the architectural design being rather dated and poor, as well as the general age of the property and quality of amenities & 4 Mark House The location has been commented on by many companies viewing as being too industrial in nature and not one that is genuinely on an office park like much of the competition such as PeopleBuilding, or Breakspeare Park or Grovelands Business Park. The entrance is not as attractive as many newer buildings which tend to have double height atria or wider more open spaces with a better feel. 4 of 12

8 Breakspear Park Triple Height Atrium Entrance 5.5. Other feedback from potential occupiers on the obsolescence has related to the lack of a lift at the front of the building which means that disability access for new visitors is not very good. This is clearly very costly to change as a new hole would have to be punched through the concrete floor slab at the front of the building in order to accommodate a lift Companies are also seeking low energy buildings to allow the running costs to be as low as possible, especially companies looking for larger buildings, who tend to be aware of property matters. Without a tenant for the past 6 years the owner has been unable to raise money to make significant alterations to improve the energy efficiency There have been problems with fly- tipping whilst we have been marketing as there have been few people at the site to look after security. 6.0 COMMENTS ON THE LOCAL SURROUNDING AREA 6.1. We acknowledge that Hemel Hempstead is well placed within the road network to allow access to national roads easily However the railway station is as you will know, positioned on the diametrically opposite side of Hemel Hempstead, making access to it time consuming or costly. Indeed Dacorum Borough Council has recognised this and has itself taken the step of laying on a bus service to the station and town centre from the Maylands Estate as the service at rush hour is perceived to be (and is) so poor. However it is understood that Dacorum Borough Council has lost some 5 of 12

9 funding for this service, resulting in the reduction in the off peak service, with the location reverting to one with more difficult rail access Many of the larger office occupiers nowadays generally want to have a relatively high profile location, or else a location surrounded by other office occupiers, especially on a mature and well looked after Business Park having facilities such as gyms, crèches, cafes and other high profile occupiers. Being surrounded by Industrial type occupiers is very much seen as being a poor location Mark Road is a side turning off the main spine road through the Maylands Estate, with the key road being Maylands Avenue. Within Mark Road we acknowledge that there is an office Business Park at Progression Centre. This is in our opinion a better location than Mark House, even though they are within close proximity as Progression Centre is surrounded by Woodland on the northern edge and has a better feel of being a well maintained Business Park Indeed the Local Planners have a policy of promoting office development on the Maylands Estate, but prefer this to be specifically within Maylands Avenue which they see as being the key office location on the estate However even Maylands Avenue is struggling to attract office occupiers, with key sites being converted either to housing, such as the former HSBC Call Centre now owned by Hightown Housing, or the Wood House site at the corner of Maylands Avenue and Wood Lane End owned by Dacorum Borough Council, where I have been asked to provide advice to Dacorum Borough Council about the type of development that should be considered for the site. My advice includes not building offices as demand is still so poor and rents are still too low. 7.0 COMMENTS ON THE SURROUNDING OCCUPIERS 7.1. We acknowledge that Hemel Hempstead is well placed within the road network to allow access to national roads easily In particular the immediate surrounding user to the rear, the waste recycling centre, brings in a considerable amount of dirt, dust and smells when the wind is strong and brings significant adverse comments from office occupiers In addition there is also now the large Datacentre immediately in front of the occupied by Gyron Internet Ltd, which has the service yard with large amounts of air- conditioning equipment positioned in the yard. This all gives a feel of being in a very industrial centre, especially when viewed from the first floor of Mark House. 8.0 MARKETING 8.1. Approval was obtained for a marketing campaign to be undertaken, and a marketing brochure was produced in April of 12

10 8.2. A site marketing board was erected and has been in front of the building since The brochure was then mailed out directly using an out- sourced mailing company, to approximately 1,000 companies using a targeted mailing list The building was also advertised on EG Property Link, one of the main national and international commercial property websites, with a full Premier Presentation listing which continued for the next two years The property was also advertised in the Commercial Property Register, a magazine with associated website, where the magazine is mailed out three times a year to local occupiers. This has continued from 2010 until now The brochure was also mailed to office agents nationally, based mainly in London, as well as to local agents within the surrounding areas of Herts, Beds and Bucks The brochure was also mailed to existing companies actively searching for space 8.8. Brasier Freeth commercial agents were brought on board as joint agents in early 2012 and as a result the brochure was redesigned and reprinted in April The brochure was then re- mailed to targeted companies in October 2012, although the brochure had already been mailed out to existing applicants as well as to local and national office agents in May It was decided not to send the brochure out to the wider targeted list until October as the summer tends to be a fairly quiet time for enquiries Advertising has continued in the Commercial Property Register and EG PropertyLink The property has also been advertised on our own website since 2010, and also on the Brasier Freeth website since OCCUPATIONAL INTEREST 9.1. Over the last 6 years there has been very little other interest until last year from Dacorum Sportspace to use the property as a gym We had been in discussion with the NHS Clinical Commissioning Group for West Hertfordshire since March 2013 to lease the entire space at units 3 & 4 to them. However, it was not until quite late in the negotiations that we discovered that they could not raise finance to purchase furniture or to pay for the cost of moving or of fitting their telephones and IT at the building due to a cutback in funding from the Government in Capital expenditure. It was at that point that they requested the Landlord pay for these works and to then pay a rent for this over the term of the lease. However they were not willing to pay interest on this sum and the Landlord could not justify to their shareholders the expense. This type of arrangement is very 7 of 12

11 Heart of Maylands Report on Demand and Uses unusual, even in the context of the difficult market from 2008 to The additional cost that the Landlord would effectively have had to fund was for over 500,000 of extra cost, and so the Landlord decided they had to withdraw, especially as nearly 100,000 had already been invested in refurbishing the first floor, with an extra 100,000 still required to refurbish the ground floor. The Landlord was not able to raise the additional sum of money for the tenants own fitout and the letting then collapsed. The tenant has now found premises elsewhere within Hemel Hempstead. Other occupiers have been to view and none have expressed interest in letting or purchasing the space. They have commented either on the overall appearance of the building not being high quality enough or else on the surroundings letting down the location and have all gone off to other buildings The office market has been improving over the last 12 months, with more tenants taking vacant space, even within Mark Road, where 1 Progression Centre, a building of around 11,000 sq.ft, comparable to Mark House has been let after being vacant for 6 years. This is however on a Business Park and is a more modern office building. 1 Progression Centre, Mark Road 9.5. However in all that time, and with the 2 the main local agents in the town involved in marketing the space, there have still only been 2 viewings in the last 12 months, of which neither has decided to come forward with an offer due to the poor surroundings and external appearance 8 of 12

12 9.6. Progression Centre has had more success but is an office park with attractive woodland on one side to the rear, and has 12 units in total giving a feel of a larger Business Park 9.7. Grovelands Business Centre has also had a number of vacant units over the last few years and units there have been let so that there are no vacant units COMPETITION There is considerable competition in terms of offices that would be considered before Mark House within Hemel Hempstead. The key factor that we find at present is that companies still want the best quality space. Therefore companies all seem to prefer to see the best quality buildings before Mark House, or even not to view Mark House at all Competing buildings include the buildings as shown in the attached Schedule of Competition. As you will see there is a considerable amount of competition locally within Hemel Hempstead, with approx 443,000 sq.ft available either immediately or within 6 months, let alone in the wider surrounding area. Much of the space has been available for over 4 years, although some buildings have benefitted from lettings, particularly the buildings that have been perceived to be the best quality in the area such as Breakspear Park and Hemel One Approximately 300,000 sq.ft of the space available has in fact been available for 4 years or more, which includes Mark House. It is quite possible in our opinion that several of these buildings will never be let or will continue to struggle as they are perceived by occupiers to be too outdated for a variety of reasons There is a large plot of 33 ac of land about to be marketed by the Homes & Communities Agency where offices could be built, potentially adding up to around 1,000,000 sq.ft more of office space Dacorum Borough Council also own around 10 ac of land where the Council is seeking to promote development of either offices or high office content offices. This could provide another 200,000 sq.ft minimum of office space if taken forward for office use, or around 70,000 sq.ft if high- office content warehouses with a 30% content Kier Developments are also marketing 2.3 ac of land where offices can be purpose built up to around 50,000 sq.ft At Westside on the south east side of Hemel Hempstead, the former BT regional office has been sold and is to be refurbished with a major refurbishment to commence shortly. This provides 94,000 sq.ft of space available from around 5,000 sq.ft upwards. However the building is close to a railway station and shopping facilities as well as reasonably close to the M25 and A Aviva also still have approx 10 ac of land at the PeopleBuilding site where offices up to 500,000 sq.ft can be built. However, even on what has to be one of the most prime sites on 9 of 12

13 the Maylands Estate, plans are understood to be advancing for alteration of the scheme, for the Council to consider change of use from offices to a retail park. This itself flies in the face of the Council s desire to see more employment land, providing what they see as high quality jobs in an office environment, and also shows that even the best sites have little prospect of being filled with occupiers Therefore there is plenty of land for future office development to build high quality modern facilities using the latest building standards that will appeal to large companies seeking space These sites will therefore all add to the potential availability of space in the future, with an immediate availability of some 443,000 sq.ft of directly competing space plus a future potential pipeline of a minimum of 550,000 sq.ft, but an additional land capacity for up to another 1,000,000 sq.ft While we note that the building could have an alternative use as workshop space on the ground floor, the unit does not have good access for large vehicles, and there are already a number of units available that have had a high office content and which have not let, such as unit 4 Maxted Court, which has been available for around 4 years. The low height of the ground floor and the poor access for large vehicles therefore make units 3 & 4 unattractive to the majority of occupiers seeking traditional storage space with a low office content and a high internal height of 8 metres plus Another alternative use would be for Research & Development, which is what the building was first proposed for use as. However there have been no occupiers seeking such a large part office / part R&D building, which would be the best alternative use As a result, we believe that alternative uses should be allowed at Mark House 11.0 QUOTING TERMS We believe that the quoting terms have been very competitive in relation to the other buildings available and there have been no other proposals that have not been considered seriously There are 2 other two- storey units, both at Focus 31, with a 50% office content at first floor level where space is being offered at 9 per sq.ft. However these units have ground floor space that has been stripped back to basic workshop type space with no floor covering, no suspended ceiling and no raised floor, and still have a loading door so that they are more suited to immediate R&D use. 10 of 12

14 12.0 FUTURE FOR THE COMMERCIAL OFFICE MARKET IN HEMEL HEMPSTEAD The future is still uncertain for the Hemel Hempstead commercial market over the next 2 years. Whilst there are fewer office buildings available and some landlords have put their quoting rents up, this has generally been buildings where there has been a very low starting point as rents were slashed over the last 4 years to try to get tenants in as quickly as possible The buildings that have always been in demand as they are in the best locations, such as Breakspear Park or Hemel One, have also seen rents increased substantially as they are now benefitting from almost full occupancy and can afford to raise their prices However there has not been a significant increase in overall demand, and indeed in the last few months there have been no significant lettings at all and further space is coming back to the market in the next 6 months as some tenants are moving out such as Northgate at PeopleBuilding There are offices that have been let in small suites such as the DBC Enterprise Centre at Eastman Way, but this takes a significant investment and with the amount of investment required here being so high already, serviced office investors for Mark House will be put off. The building was also considered several years ago, back in around 2009 by a serviced office centre operator, but the configuration of the floorspace and relative lack of windows does not allow good use of the space or provide enough offices with good natural light In addition, if the space is split in to smaller suites then there will be a significant loss of space for corridors and meeting rooms etc, and this will further reduce the potential rental income from the units, again making them less viable at a time when huge investment would be required. The letting of this building for office or R&D use will continue to be a major challenge given its age, style and location. It is likely that these units will remain vacant for the long term future. It is also possible that the occupier of units 1 & 2 may vacate at the end of their lease term in less than 2 years time due to the lack of occupancy and the feeling of being run- down which in turn will reduce further the likelihood of letting any of the space. The continued occupational uncertainty is also prolonging the period that the building remains in Receivership, given the reticence of investors to acquire the property with its poor occupational history and uncertain future. I trust that this report will be sufficient for your purposes but should you require any further information please do not hesitate to contact me. Your Sincerely 11 of 12

15 Ian H Archer MRICS Director For and on behalf of Aitchison Raffety Mobile: Direct line: ian.archer@argroup.co.uk 12 of 12